Consider a closed economy to which the Keynesian-cross analysis applies. Consumption is given by the equation C = 100 + 0.6*(Y – T). Planned investment is 300, as are government spending and taxes. a. If current output is 1,400, what is planned consumption? What is planned expenditure? b. What is inventory accumulation (i.e., unexpected increase in inventory) or decumulation (i.e., unexpected decrease in inventory)? Should equilibrium output be higher or lower than 1,400? C. What is equilibrium output? What is equilibrium consumption?
Consider a closed economy to which the Keynesian-cross analysis applies. Consumption is given by the equation C = 100 + 0.6*(Y – T). Planned investment is 300, as are government spending and taxes. a. If current output is 1,400, what is planned consumption? What is planned expenditure? b. What is inventory accumulation (i.e., unexpected increase in inventory) or decumulation (i.e., unexpected decrease in inventory)? Should equilibrium output be higher or lower than 1,400? C. What is equilibrium output? What is equilibrium consumption?
Chapter23: The Aggregate Expenditure Model
Section: Chapter Questions
Problem 11P
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