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:

a. 990
b. 940
c. 900
d. 890

Answer 1

expenditure = 900 + 0.80Y

correct option is c. 900

Step-by-step explanation:

given data

Econland autonomous consumption Co = 700

marginal propensity to consume = 0.80

net taxes = 50

planned investment = 100

government purchases = 100

net exports = 40

to find out

The slope of the expenditure line

solution

we know equation of consumption line that is express as function C

C = a+b(Y-T) ...................1

here a is autonomus consumption and b is marginal propensity and Y is equilibrium GDP and T is taxes so

it will be

C = [700 + 0.80(Y - 50)]

and aggregate expenditure is here

aggregate expenditure = C + I + G + NX ..............................2

here I is plan investment and G is government purchases and NX is net exports so

put all value we will get here

expenditure PAE = [700 + 0.80(Y - 50)] + 100 + 100 + 40

PAE = 700 + 0.80Y - 40 + 100 + 100 + 40

PAE = 900 + 0.80Y

as slope of expenditure is marginal propensity

and we know that all are fixed except marginal propensity to consume

so correct option is c. 900