Homework Answers
Answer
MPC=marginal propensity to consume =change in AE/change in
GDP
=(300-285)/(305-257)
=0.3125
AE function is the form of
autonomous expenditure=a
AE=a +MPC*Y=a+0.3125*Y
using point (257,285)
285=a+0.3125 *257
a=285-80.3125=204.6875
now the function is
AE=204.6875+0.3125Y
the equilibrium is at
Y=AE
Y=204.6875+0.3125Y
Y-0.3125Y=204.6875
0.6875Y=204.6875
Y=297.727273
the AE equal GDP at 297.727273.
============
Also the graph is as follows
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