Figure 13-6
-Refer to Figure 13-6. Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, JI_P = Planned Investment, G = Government Purchases. Further, I_P and G are autonomous. What is the marginal propensity to consume?

Question

Figure 13-6 Figure 13-6 -Refer to Figure 13-6. Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, JI<sub>P</sub> = Planned Investment, G = Government Purchases. Further, I<sub>P</sub> and G are autonomous. What is the marginal propensity to consume? A) 0.25 B) 0.5 C) 1.0 D) 2

Figure 13-6 -Refer to Figure 13-6. Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, JI<sub>P</sub> = Planned Investment, G = Government Purchases. Further, I<sub>P</sub> and G are autonomous. What is the marginal propensity to consume? A) 0.25 B) 0.5 C) 1.0 D) 2

-Refer to Figure 13-6. Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, JI_P = Planned Investment, G = Government Purchases. Further, I_P and G are autonomous. What is the marginal propensity to consume?

Quizplus · Accepted Answer

The equation of the consumption curve is Y = C + b(Y-T), where T is taxes and b is the marginal propensity to consume. From the graph, we can see that at Y = 0, C = 200 and AE = 300. Therefore, planned investment at Y = 0 is JI_P = 100. We can also see that the intercept of the 45-degree line (Y = AE) is at Y = 200. This implies that taxes are equal to 0. Therefore, the consumption curve is Y = 200 + 0.5(Y-0) or Y = 0.5Y + 200. Hence, the marginal propensity to consume is 0.5.

Figure 13-6 -Refer to Figure 13-6. Let Y = Real GDP, AE