Question

i just need the graph

An economy is described as follows:

C	= 3,000 + 0.5 (Y – T)
I p	= 1,500
G	= 2,500
NX	= 200
T	= 2,000
Y*	= 12,000

a. For the economy described above, find autonomous expenditure, the multiplier, short-run equilibrium output, and the output gap.

Instructions: Enter your responses as whole numbers.

Autonomous expenditure:

Multiplier:

Short-run equilibrium output:

Output gap:


b.  Illustrate this economy’s short-run equilibrium on a Keynesian cross diagram.

Instructions: On the graph below, use the line tool 'PAE' to draw the planned aggregate expenditure line using the points at Y = 12,000 and Y = 12,800 only. Use the point tool 'Short-term eq.' to identify the equilibrium level of income and expenditure.

i just need the graph.

Answer 1

A) Autonomous expenditure (AE) = C + Ip + G + NX

Or, AE = 3000 + 0.5(Y - T) + 1500 + 2500 + 200

Or, AE = 7200 + 0.5(Y - 2000) = 7200 + 0.5Y - 1000

Or, AE = 6200 + 0.5Y

From the Consumption function it can be seen that MPC = 0.5.

Therefore, multiplier = 1/(1 - MPC) = 1/(1-0.5) = 1/0.5 = 2

At equilibrium, Y = AE

Or, Y = 6200 + 0.5Y

Or, 0.5Y = 6200

Or, Y = 12400

Therefore, short run equilibrium output is 12400.

Potential output (Y*) = 12,000

Therefore, output gap = (12400 - 12000) = 400. It's an inflationary gap because short run equilibrium output is greater than potential GDP.