In Macroland, autonomous consumption equals 100, the marginal propensity to consume equals 0.75, net taxes are fixed at 40, planned investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20. The vertical intercept of the expenditure line is:
A)0.25.
B)0.75.
C)290.
D)320.

Question

Quizplus · Accepted Answer

In this case, because C = 100 + 0.75(Y − T ), we have PAE = C + I + G + NX = [100 + 0.75(Y − 40)] + 50 + 150 + 20 = 100 + 0.75Y − 30 + 50 + 150 + 20 = 290 + 0.75Y. The vertical intercept (which is equal to autonomous expenditure)equals 290.

In Macroland, Autonomous Consumption Equals 100, the Marginal Propensity to Consume