Question: All units are given in $ million. C= 800 + 0.5Y D I= 100 T = 80 G = 200 Refers to below C =

All units are given in $ million.

C= 800 + 0.5YD

I= 100

T = 80

G = 200

Refers to below

C = Consumption expenditure, I = Gross investment, T = Income tax, G = Government expenditure, AE = Aggregate expenditure, YD = Disposable income

Question

  1. Solve for the good market equilibrium. Determine the equilibrium Y,C, AE, and YD.
  2. Graph (with correct labels) the equilibrium Y and AE.
  3. Determine the private saving and public saving.
  4. What is the value of marginal propensity to consume (mpc)? What does it mean?
  5. What is the value of marginal propensity to save (mps)? What does it mean?
  6. What is the relationship between mpc and mps?
  7. Determine the expenditure multiplier(KE) and total autonomous spending(A). Explain what they mean.
  8. Today, the government is facing reelection and increases government spending(G) from $200 million to $240 million(Fiscal expansion). Determine the new equilibrium income, consumption, and disposable income. Why would the government want to do so?

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