Consider the following information describing a closed economy with no government and where aggregate output is demand determined. All dollar figures are in billions.
1. the equilibrium condition is Y = C + I
2. the marginal propensity to consume is 0.90
3. the autonomous part of C is $300
4. investment is autonomous and is $100
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 YD.
E) AE = $200 billion + 0.1 YD.

Question

Quizplus · Accepted Answer

The aggregate expenditure function is given by AE = C + I. Using the information provided, we know that autonomous consumption is $300 and the marginal propensity to consume is 0.9. Therefore, the consumption function can be written as C = $300 + 0.9(Y). Investment is autonomous and is given as $100. Thus, the aggregate expenditure function is AE = $300 + 0.9(Y) + $100 = $400 + 0.9(Y).

Consider the Following Information Describing a Closed Economy with No