1. Income-Expenditure Model

2. 2001 recession

3. Great Recession

4. Question 1 Determine the marginal propensity to consume and the marginal propensity to save. Disposable income (billion $) Consumption spending (billion $) 2011 11,787 10,712 2012 12,246 11,150

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

6. 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*?

7. 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