Assume in Macroland, MPC=0.6, and autonomous consumption = $5000. Planned investment = $4000, and planned government purchases $4000. All planned expenditure are autonomous expenditures. Taxes (T) is zero, and net exports = zero.
a. Write out the consumption function
b. What is induced consumption in this model?
c. Write out the planned expenditure function (show your work)
d. Calculate equilibrium real current GDP (income) (show your work)
e. How much is the expenditure multiplier?
f. If at the current level of equilibrium, the economy is experiencing an recessionary gap of $6000. How much is the full employment GDP'?
g. How much does planned investment change to close the recessionary gap?
h. Write out the new planned expenditure function after the change in planned investment
i. Graph the planned expenditure function. Show the change (shift) for a change in investment to close the gap. Show equilibrium points, full-employment GDP. Label all points clearly
