Income-Expenditure Model. 2001 recession Great Recession.

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Income-Expenditure Model

2001 recession

Great Recession

Question 1 Determine the marginal propensity to consume and the marginal propensity to save. Disposable income (billion $) Consumption spending (billion $) ,787 10, ,246 11,150

Question 2 Given: (all real dollars) Autonomous consumption spending =$250 billion Planned investment spending = $350 billion The marginal propensity to consume = 2/3

Question 2 1)Plot the consumption function and aggregate expenditures 2)What is the value of Y* (equilibrium GDP)? 3)What is unplanned inventory investment when real GDP = $600 billion? 4)What is the value of the multiplier? 5)If planned investment increases to $450 billion, what is the new value of Y*?

Question 2 2)What is Y* (equilibrium GDP)? Y*=$1,800 billion 3)What is unplanned inventory investment when real GDP = $600 billion? I unplanned = -$400 billion 4)What is the value of the multiplier? Multiplier=3.0 5)If planned investment increases to $450 billion, what is the new value of Y*? Y** = $2,100 billion