In Econland autonomous consumption equals 700, the marginal propensity to consume equals 0.80, net taxes are fixed at 50, planned investment is fixed at 100, government purchases are fixed at 100, and net exports are fixed at 40. Planned aggregate expenditure equals:
A)990 + 0.20Y.
B)900 + 0.80Y.
C)940 + 0.80Y.
D)990 + 0.80Y.

Question

Quizplus · Accepted Answer

In this case, because C = 700 + 0.80(Y − T ), we have PAE = C + I + G + NX = [700 + 0.80(Y − 50)] + 100 + 100 + 40 = 700 + 0.80Y − 40 + 100 + 100 + 40 = 900 + 0.80Y.

In Econland Autonomous Consumption Equals 700, the Marginal Propensity to Consume