r the consumpton tunction is C 8ooery-T, output, Y.- $4100 and net For the data
ID: 2443621 • Letter: R
Question
r the consumpton tunction is C 8ooery-T, output, Y.- $4100 and net For the data in the following table, the consumption function is C- 800 0.6(Y-D. Fill in the columns in the table and identify the equilibrium output axes, T - $100, then consumption (Round your response to the nearest whole number Planned Unplanned Net Disposable Consumption Investment Government Aggregate Inventory Change Output Taxes Income Spending Saving $2.100 | $100 | Spending Purchases Expenditure $400 $300 ?300 | 400 | 2,600 100 3,100 100 3,600 100 4,100 4,600 100 5,100100 400 400 400 300 100 300 5,100 100300 The equilbrium output is sExplanation / Answer
The consumption function provided in the probloem is C = 800 + 0.6 (Y-T). Also, Y = $4,100 and net taxes T=$100, substituting these values in the above equation, we get,
C = 800 + 0.6 (Y-T) = 800 + 0.6 (4,100 - 100) = 800 + 0.6 (4000) = 800 + 2400 = $3,200.
The consumption in this case is $3,200.
Similarly, the information provided is represented in the table below:
Output ($)
Net Taxes ($)
Disposable Income ($)
Consumption Spending ($)
Saving ($)
Planned Investment Spending ($)
Government Purchases ($)
Planned Aggregate Expenditure ($)
Unplanned Inventory Change ($)
2,100
100
1,200
2,000
100
300
400
2,700
-600
2,600
100
1,500
2,300
300
300
400
3,000
-400
3,100
100
1,800
2,600
500
300
400
3,300
-200
3,600
100
2,100
2,900
700
300
400
3,600
0
4,100
100
2,400
3,200
900
300
400
3,900
200
4,600
100
2,700
3,500
1,100
300
400
4,200
400
5,100
100
3,000
3,800
1,300
300
400
4,500
600
In the above table, the disposable income, consumption spending, saving, planned aggregate expenditure and unplanned inventory change have been calculated.
As, the disposable income is the amount left for consumption after deduction of the taxes and socila security charges, therefore, it is calculated as MPC (marginal propensity to consume, 0.6 in this case) multiplied by the income net of taxes (Y-T).
'C' refers to the consumption spending by customer. In the provided equation, the 'C' is calculated by putting the respective values of 'Y' and 'T' in the equation.
As, the total income (or output, 'Y') is the sum of consumption and savings, the savings are calculated byt subtracting consumption from the respective output values.
Aggregate expenditure is the value of all of the finished goods and services in the economy, it is calculated as the sum of consumption, planned investment spending and government purchases.
If income (or output) differs from the aggregate expenditure, it is said that there is an unplanned inventory change in the economy. If income is more than the aggregate expenditure, it is said that there is an unplanned increase in the inventories. On the other hand, if income is less than the aggregate expenditure, it is said that there is an unplanned decrease in the inventories and are shown with a negative sign in the table.
It is inferred from the calculated values in the table that the unplanned inventory change is 0 when the output ($3,600) equals the aggregate expenditure ($3,600). Here, the total income is equal to the total expenditure in the economy. Thus, 3,600 is the equilibrium output of the economy.
Output ($)
Net Taxes ($)
Disposable Income ($)
Consumption Spending ($)
Saving ($)
Planned Investment Spending ($)
Government Purchases ($)
Planned Aggregate Expenditure ($)
Unplanned Inventory Change ($)
2,100
100
1,200
2,000
100
300
400
2,700
-600
2,600
100
1,500
2,300
300
300
400
3,000
-400
3,100
100
1,800
2,600
500
300
400
3,300
-200
3,600
100
2,100
2,900
700
300
400
3,600
0
4,100
100
2,400
3,200
900
300
400
3,900
200
4,600
100
2,700
3,500
1,100
300
400
4,200
400
5,100
100
3,000
3,800
1,300
300
400
4,500
600
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