Question

# Country XYZ has the following Aggregate Demand Equation: Y = C + I + G C...

Country XYZ has the following Aggregate Demand Equation:

Y = C + I + G

C = 1,500 + 0.75Y

I = 2,500

G = 6,000

a) Calculate equalibrium Y

b) What is the value of Consumption?

c) What is the value of Marginal Propensity to Consume?

Part a)

Y = C + I + G

Y = 1,500 + 0.75Y + 2,500 + 6,000

0.25Y =10000

Y=10000/0.25 = 40000

Part b)

C = 1,500 + 0.75Y

C = 1,500 + 0.75 x 40000

C = 1,500 + 30000

C = 31,500

Part C)

Marginal Propensity to Consume (MPC) is the change in consumption due to a change in income. To find the same we need to use differentiation formula:

So for every unit of change in Y, C changes by 0.75Y

We can verify the same by substituting a few values:

 Y 0 10 30 80 C 1500+0.75 x 0 = 1500 1500+0.75 x10=1507.5 1500+0.75x30=1522.5 1500+0.75x80=1560 Change in Y 10-0=10 30-10=20 80-30=50 Change in C 0.75 x 10 = 7.5 or 1507.5-1500=7.5 0.75x20= 15 or 1522.5-1507.5=15 0.75 x 50=37.5 or 1560-1522.5=37.5

#### Earn Coins

Coins can be redeemed for fabulous gifts.

Similar Homework Help Questions
• ### Question 3 1.5 pts The aggregate demand of an open economy is given by the after-tax...

Question 3 1.5 pts The aggregate demand of an open economy is given by the after-tax domestic consumption C, the investment I (which depends on the interest rater), the government spending G and net exports X-M: AD-C+I+G+X-M=CO+ c1 (1 - t)Y + I(r) +G+X-mY Co is autonomous consumption.c, is the marginal propensity to consume, and m is the marginal propensity to import. In the economy's equilibrium this equals its output: AD - Y. Solving for Y yields: y=(1/(1-c1(1 – t)...

• ### QUESTION TWO An economy is represented by the following set of equations: Y = C +...

QUESTION TWO An economy is represented by the following set of equations: Y = C + I C = 80m + 1.6Y where Y represents aggregate expenditure C represents consumption expenditure by households I represents investment expenditure by firms M is millions of Ghana cedis (a) (i) Explain why the model is not an open economy? (2 marks) (ii) Explain investment expenditure (I) as used in the model. (3 marks) (b) Using the consumption function, estimate the autonomous consumption; marginal...

• ### please do the part b of the question 3. You are given the following information for Country Z C=Co + ci(1-t)Y INI G=G N...

please do the part b of the question 3. You are given the following information for Country Z C=Co + ci(1-t)Y INI G=G NX = X - my Country Z Dec 2018 Autonomous Consumption \$20 trillion | Marginal Propensity to Consume 0.9 Marginal Tax Rate 0.25 Investment \$200 trillion Government \$200 trillion Exports \$25 trillion Marginal Propensity to Import 0.07 April 2019 \$20 trillion 0.9 0.25 \$199 trillion \$200 trillion \$25 trillion 0.07 a) How much does the government of...

• ### Suppose there are three economies with 3 different consumption functions: Country A: C=100+0.8Y Country B: C-200...

Suppose there are three economies with 3 different consumption functions: Country A: C=100+0.8Y Country B: C-200 +0.75 Y Country C: C-75 +0.9Y In which of these countries is the marginal propensity to consume the largest? Country A Country B Country C All countries have the same marginal propensity to consume. • Previous Nese

• ### The equation for aggregate demand for a given price level is Y=C+I+G+(X-IM). Which part of aggregate...

The equation for aggregate demand for a given price level is Y=C+I+G+(X-IM). Which part of aggregate demand does monetary policy influence the most?

• ### Best AE CIG +I+G • Y Y Y Y Ys 16. The incone level at which...

Best AE CIG +I+G • Y Y Y Y Ys 16. The incone level at which there would definitely be over-production would be: A. Y B. Y c. Y, D. Y 17. the income level at which the amount of aggregate demand would equal the amount of aggregate supply would be: AYI B. Y, D. Y c. Y 18. From the graph it may be determined that: A. the marginal propensity to invest is positive. B. the marginal propensity to...

• ### We have the following model of the economy: (I)Y-C+S+T (2) E-C+I+G (3) Y E (4) C-(YD. CA (5) S-s(...

1-5 We have the following model of the economy: (I)Y-C+S+T (2) E-C+I+G (3) Y E (4) C-(YD. CA (5) S-s(YD SA) (6) I=IA 7) G-GA (8) T TA (9) YD Y T (10) Deficit =G-T The following data for equilibrium values will help in this problem. G-800 I 30 T=650 Y'=5,000 Calculate 1. the equilibrium value of consumption 2. marginal propensity to consume (AC/AY) 3. the expenditure multiplier 4. The government budget now has an imbalance ofThis is a DEFICIT...

• ### For a hypothetical economy, suppose the consumption equation is C = 30 + 0.65Y, where C...

For a hypothetical economy, suppose the consumption equation is C = 30 + 0.65Y, where C is households’ consumption and Y is disposable income. If the disposable income is \$600, carefully show your steps and calculate: The levels of (i) consumption and (ii) saving. The marginal propensity to (i) consume and (ii) save. The average propensity to (i) consume and (ii) save. Interpret your estimates in (c).

• ### 1) Suppose an economy is characterized by the following equations. Y = C+/+G Y = 10,500...

1) Suppose an economy is characterized by the following equations. Y = C+/+G Y = 10,500 G = 800 TA = 1000 S = 1600+ 0.1(Y-TA) + 20001 1 = 600+ 0.20Y - 30001 Where Y is real GDP, G is government purchases of goods and services, S is total national savings, is the nominal rate of interest and I is total investment. There are no transfers in this economy and agents can only consume or save their income. a)...