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Suppose You Are Given the Following Information About the Economy

Question 42

Essay

Suppose you are given the following information about the economy:
C = 200 + 0.75Y
I = 50
G = 250
X = 100
(A)Find the aggregate expenditure function (the total amount of spending by the four groups),and plot it on a graph with spending on the vertical axis and output on the horizontal axis.
(B)Suppose current output is 2,800.On your graph,identify this output level and the level of spending associated with it.
(C)Is Y = 2,800 the short-run equilibrium level of output? Please explain and demonstrate graphically.

Correct Answer:

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(A) E = C + I + G + X = 200 + 0.75Y + 50...

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