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Exhibit: Aggregate Expenditures and Real GDP 1
-(Exhibit: Aggregate Expenditures and Real GDP 1) Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, I_P = Planned Investment. Suppose AE = C + I_P. I_P is autonomous and the consumption function is C = $1,000 billion + 0.5Y. If real GDP = $5,000 billion, what is the amount of aggregate expenditures?

Question

Use the following to answer questions .
Exhibit: Aggregate Expenditures and Real GDP 1

-(Exhibit: Aggregate Expenditures and Real GDP 1) Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, I_P = Planned Investment. Suppose AE = C + I_P. I_P is autonomous and the consumption function is C = $1,000 billion + 0.5Y. If real GDP = $5,000 billion, what is the amount of aggregate expenditures?

Quizplus · Accepted Answer

AE = C + I_P C = $1,000 billion + 0.5Y Y = $5,000 billion Therefore, C = $1,000 billion + 0.5($5,000 billion) C = $1,000 billion + $2,500 billion C = $3,500 billion AE = C + I_P AE = $3,500 billion + I_P Since I_P is autonomous, we do not have any information about its value. Therefore, the best choice is (C) $5,500 billion, which includes the value of autonomous investment.

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