In a certain economy, the components of planned spending are given by: C = 500 + 0.8(Y - T) - 300r
Ip = 200 - 400r
G = 200
NX = 10
T = 150
Given the information about the economy above, which expression below gives autonomous expenditures?
A)0.8Y
B)[790 - 700r]
C)[910 - 700r]
D)[760 - 700r]

Question

Quizplus · Accepted Answer

Autonomous expenditures are the components of spending that do not depend on the level of income (Y). They include constant terms and terms involving the interest rate (r). Here, C = 500 - 300r, Ip = 200 - 400r, G = 200, NX = 10, and T = 150. Adding these gives: 500 + 200 + 200 + 10 - 300r - 400r = 910 - 700r. However, since T is subtracted in the consumption function, the correct autonomous expenditure is 790 - 700r.

In a Certain Economy, the Components of Planned Spending Are