A) When aggregate expenditure = PAE1, equilibrium income = $400 billions. When aggregate expenditure = PAE2, equilibrium income= $500 billions.
Expenditure multiplier = change in Y / change in autonomous expenditure = ∆Y / ∆PAE = $(500 - 400) billions / $60 billions = $100 billions / $60 billions = (10/6) = (5/3)
B) Expenditure multiplier = 1/(1 - MPC)
Or, (5/3) = 1/(1 - MPC)
Or, 5(1 - MPC) = 3
Or, 1 - MPC = (3/5)
Or, MPC = 1 - (3/5) = 2/5 = 0.4
2. For the figure shown, answer the following questions: PAE = Y PAEZ PAE Planned aggregate...
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