Answer:
1. Autonomous expenditure = 6200
2. multiplier = 2
3. short run equilibrium = $12,400
4. Output gap = $400
Explanation:
Given Data:
C = 3,000 + 0.5 (Y – T )
I p = 1,500
G = 2,500
NX = 200
T = 2,000
Y = 12,000
Calculating the planned aggregate expenditure using the formula;
PAE = C + Ip + G + Nx
Substituting, we have;
PAE = 3,000 + 0.5 (Y – T) + Ip + G + Nx
PAE = 3,000 + 0.5 (Y – 2,000) + 1,500 + 2,500 + 200
= 3000 + 0.5Y - 1000 + 1500 + 2,500 + 200
= 6200 + 0.5Y
1. Calculating the autonomous expenditure, taking Y =0, we have;
autonomous expenditure = 6200 + 0.5*0
= 6200
2. Calculating the multiplier using the formula;
Multiplier = 1/(1-Mpc)
= 1/(1-0.5)
= 2
3. Calculating the short run equilibrium, using the formula;
PAE = Y
6200 + 0.5Y= Y
Y - 0.5Y = 6200
0.5Y = 6200
Y = 6200/0.5
Y = 12,400
(4) Output gap:
Given output = $12000
Short run equilibrium = $12,400
Expansionary output gap = 12,400 - 12,000
= $400
