Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption. If the consumption function is JC = $500 + 0.8Y, planned investment = $200, government purchases = $300,
Jnet exports = $100, and real GDP = $1,000, what is the amount of induced expenditures?
A) $500
B) $800
C) $1,100
D) $1,900

Question

Quizplus · Accepted Answer

Induced expenditures are those that depend on the level of real GDP. In this case, only consumption depends on real GDP, indicated by the coefficient of 0.8. Therefore, induced expenditures can be calculated as 0.8 x $1,000 = $800.

Consider a Simple Aggregate Expenditure Model Where All Components of Aggregate