Using the Keynesian-cross analysis, assume that the consumption function is given by C = 200 + 0.7 (Y - T). If planned investment is 100 and T is 100, then the level of G needed to make equilibrium Y equal 1,000 is:
A)170.
B)200.
C)250.
D)350.

Question

Quizplus · Accepted Answer

The equilibrium level of income (Y) is determined by the intersection of the aggregate expenditure (AE) curve and the 45-degree line. The AE curve is given by AE = C + I + G, where C is consumption, I is planned investment, and G is government spending. Substituting the given values, we get AE = 200 + 0.7 (Y - 100) + 100 + G. Setting AE equal to Y and solving for G, we get G = 170.

Using the Keynesian-Cross Analysis, Assume That the Consumption Function Is