In a certain economy, the components of planned spending are given by:
C = 500 + 0.8(Y - T)- 300r
I ᴾ = 200 - 400r
G = 200
NX = 10
T = 150

Given the information about the economy above, which expression gives induced expenditures?

Question

In a certain economy, the components of planned spending are given by:  
C = 500 + 0.8(Y - T)- 300r
I ᴾ = 200 - 400r
G = 200
NX = 10
T = 150
 
Given the information about the economy above, which expression gives induced expenditures?

Quizplus · Accepted Answer

Recall that PAE = C + I ᴾ + G + NX. Substituting into the equation gives PAE = 500 + 0.8(Y − 150)− 300r + 200 − 400r + 200 + 10. Collecting terms yields PAE = [790 − 700r] + 0.8Y. Induced expenditures are those expenditures that are dependent on Y: 0.8Y.

In a Certain Economy, the Components of Planned Spending Are