Consider the following information describing a closed economy with no government and where aggregate output is demand determined.All dollar figures are in billions. TABLE 21-3 Refer to Table 21-3.The correct expression for the aggregate expenditure function for this economy is
A)AE = $760 billion.
B)AE = $300 billion + 0.9Y.
C)AE = $400 billion + 0.9Y.
D)AE = $400 billion + 0.1 .
E)AE = $200 billion + 0.1 .

Question

Consider the following information describing a closed economy with no government and where aggregate output is demand determined.All dollar figures are in billions.  TABLE 21-3 Refer to Table 21-3.The correct expression for the aggregate expenditure function for this economy is
A)AE = $760 billion. 
B)AE = $300 billion + 0.9Y. 
C)AE = $400 billion + 0.9Y. 
D)AE = $400 billion + 0.1 . 
E)AE = $200 billion + 0.1 .

Quizplus · Accepted Answer

The given table provides information on the components of aggregate expenditure (AE) for different levels of real output (Y) in the economy. To find the aggregate expenditure function, we need to identify the relationship between AE and Y.

Option A: AE = $760 billion is incorrect as it does not take into account the relationship between AE and Y.

Option B: AE = $300 billion + 0.9Y is also incorrect as it assumes that consumption expenditure (C) is a fixed amount of $300 billion, whereas the table shows that C varies with changes in Y.

Option C: AE = $400 billion + 0.9Y is the correct expression for the aggregate expenditure function. The table shows that total planned expenditure (AE) equals $400 billion when there is no real output (Y=0). As real output increases by $1 billion, consumption expenditure (C) increases by $0.9 billion, which adds to AE. This relationship between AE and Y is captured by the equation AE = $400 billion + 0.9Y.

Option D and E are incorrect as they are not based on the information in the table.

Consider the Following Information Describing a Closed Economy with No