Question

Based on the assumptions of the aggregate expenditure model, fill in the columns for planned investment, government spending, and net exports.
Hwk 7 (Ch. 1): Opens 3/21, Due 3/28 6 8 Consider the data presented in the table: investment Actual aggregate expenditure or output (Y) (billions of S) Consumption (C) Planned investmentspending (6) Net exports (Nx) (billions of S) (billions of S) (billions of S) (billions of S) of s) points 399 476 558 630 618 718 eBook 910 Based on the assumptions of the aggregate expenditure model, fill in the columns for planned investment, government spending, and net exports. Instructions: Enter the values into the table above Raferences a. For each level of actual aggregate expenditure, calculate unplanned inventory investment Instructions: Enter the values into the table above?lf the value is negative, then be sure to enter a minus sign. b. What is the equilibrium level of aggregate expenditure in this economy? Instructions: Enter a number rounded to the nearest whole number c. Suppose that planned investment increases by $20 billion. What is the new equilibrium level of aggregate expenditure in this Instructions: Enter a number rounded to the nearest whole number. Prey8 of 8 Next

Answer 1

Aggregate expenditure (AE) = C + Ip + G + NX where

Ip: Planned investment = 120 (autonomous)

G: Government spending = 110 (autonomous)

NX: Net exports = 10 (autonomous)

(a) All values in $ billion

Y	C	Ip	G	NX	AE	Unplanned Inventory Investment = Y - AE
510	310	120	110	10	550	-40
610	390	120	110	10	630	-20
710	470	120	110	10	710	0
810	550	120	110	10	790	20
910	630	120	110	10	870	40

(b) In equilibrium, Y = AE

Equilibrium aggregate expenditure = $710 billion

(c) When Ip rises by $20 billion, new Ip = $140 billion

Y	C	Ip	G	NX	AE
510	310	140	110	10	570
610	390	140	110	10	650
710	470	140	110	10	730
810	550	140	110	10	810
910	630	140	110	10	890

Equilibrium aggregate expenditure = $810 billion

(d) MPC = Change in C / Change in Y = $(390 - 310) billion / $(610 - 510) billion = $80 billion / $100 billion = 0.80

(e) Multiplier = 1 / (1 - MPC) = 1 / (1 - 0.8) = 1 / 0.2 = 5.00