Question

In Econland autonomous consumption equals 700, the marginal propensity to consume equals 0.80, net taxes are fixed at 50, planned investment is fixed at 100, government purchases are fixed at 100, and net exports are fixed at 40. The slope of the expenditure line is ________

Answer 1

Answer:

The slope of the expenditure line is 0.80.

Step-by-step explanation:

Given information: Autonomous consumption = 700, marginal propensity to consume = 0.80, net taxes are fixed at 50, planned investment is fixed at 100, government purchases are fixed at 100, and net exports are fixed at 40.

The equation of consumption expenditure line is

$C=C_0+cY$

where, C₀ is autonomous consumption  and c is marginal propensity to consume.

Aggregate expenditure:

$AE=C+I+G+(X-M)$

where, C is consumption expenditure, I is investment, G is government purchases, (X-M) net exports.

All expenses are fixed except marginal propensity to consume.

$Expenditure=700+0.80Y+50+100+(100)+40$

$Expenditure=990+0.80Y$

The slope of expenditure line is equal to marginal propensity to consume.

Therefore the slope of the expenditure line is 0.80.