If planned autonomous investment is 500,autonomous consumption 300,induced consumption 2500,savings 500,and government spending and taxes zero,then
A)Ep is 3300 and the economy is in equilibrium.
B)Ep is 3300 and the economy is out of equilibrium.
C)Ep is 3500 and the economy is in equilibrium.
D)Ep is 3500 and the economy is out of equilibrium.

Question

Quizplus · Accepted Answer

Ep (equilibrium output) can be found by adding autonomous investment, autonomous consumption, and induced consumption, which gives us 500 + 300 + 2500 = 3300. However, we also know that savings are equal to 500. In order to maintain equilibrium, aggregate output must equal total expenditure, which means we need to add back in the 500 in savings to get a total expenditure of 3300 + 500 = 3800. Since government spending and taxes are both zero, total expenditure (Ep) is also equal to total income (Y) in this scenario. Therefore, the equilibrium output (Ep) is 3800/1 = 3500, indicating that Choice C is correct.

If Planned Autonomous Investment Is 500,autonomous Consumption 300,induced Consumption 2500,savings