Question

In the Income-Expenditures model, it is assumed that investment is independent of the level of (current) income. This is:

Answer 1

Answer:

I'm not sure what this question is about, but the concept of the income expenditures model and its components is the following:

In the income (or aggregate) expenditures model, its author (Keynes) established certain assumptions in order to analyze how the economy works as a whole. His assumptions included that investment, government spending and net exports were all independent from income level.

When the economy is at equilibrium, total expenditures (GDP) = income level = consumption + government + investment + net exports

Another important assumptions are:

• marginal propensity to consume (MPC) + marginal propensity to save (MPS) = 1
• consumption = autonomous consumption + [MPC x (total income level - taxes)]

Savings = investment increase when disposable income increases or real GDP increases.

This model is used to explain the relationship between labor and production levels, and how they are affected by the economy's total expenditures. By increasing expenditures, the demand for labor and products/services will increase.