The following table shows consumption (C), investment spending (I), and government purchases (G), for some hypothetical economy at several levels of income (reported in billions of dollars of real GDP). Assume that in this economy, income is taxed at a rate of 25%, base consumption is $100 billion, and that the marginal propensity to consume (MPC) is 0.333, or 1/3. Further assume that this economy is closed, that is, there is no international trade and so net exports are always equal to zero.
The following table shows consumption (C), investment spending (I), and government purchases (G), for some hypothetical economy at several levels of income (reported in billions of dollars of real GDP). Assume that in this economy, income is taxed at a rate of 25%, base consumption is $100 billion, and that the marginal propensity to consume (MPC) is 0.333, or 1/3. Further assume that this economy is closed, that is, there is no international trade and so net exports are always equal to zero.
Chapter18: The Keynesian Model
Section: Chapter Questions
Problem 9SQP
Related questions
Question
Please answer everything in photos. Last question is asking which would send a signal to firms to decrease production/keep production the same/increase production.
Transcribed Image Text:Use the black line (plus symbol) to plot a 45-degree line on this graph. Then use all 6 of the the blue points (circle symbols) to plot the planned
expenditure line for this economy. Be sure to plot these points at the income levels listed in the table (0, 100, 200, 300, 400, and 500 billion dollars).
Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically.
(?)
PLANNED EXPENDITURES (Billions of dollars)
600
500+
400
300
200
100
0
0
100
+
300
200
400
INCOME (Billions of dollars)
500
600
On the previous graph, use the black point (plus symbol) to indi
Note: Dashed drop lines will automatically extend to both axes.
Suppose income is currently $100 billion. This would mean that
which would send a signal to firms to
➡+
45-Degree Line
O
PE Line
++
Equilibrium Income
the economy is in equilibrium.
planned expenditure must also equal $100 billion
firms would have excess, unplanned, inventories of $225 billion
firms would have a $225 billion unplanned reduction in inventories
+
Transcribed Image Text:The following table shows consumption (C), investment spending (I), and government purchases (G), for some hypothetical economy at several
levels of income (reported in billions of dollars of real GDP). Assume that in this economy, income is taxed at a rate of 25%, base consumption is $100
billion, and that the marginal propensity to consume (MPC) is 0.333, or 1/3.
Further assume that this economy is closed, that is, there is no international trade and so net exports are always equal to zero.
Use the given information to fill in disposable income, consumption, and planned expenditures in the following table.
Disposable (After Tax)
Income: Real
GDP
(Billions of
dollars)
0
100
200
300
400
500
Income
(Billions of dollars)
0
(Billions of
dollars)
100
Ip
(Billions of
dollars)
50
50
50
50
50
50
G
(Billions of
dollars)
150
150
150
150
150
150
The following graph shows income (real GDP) on the horizontal axis and planned expenditure on the vertical axis.
Planned
Expenditures
(Billions of dollars)
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps with 4 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Exploring Economics
Economics
ISBN:
9781544336329
Author:
Robert L. Sexton
Publisher:
SAGE Publications, Inc