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) 0.2
B) 0.8
C) 0.9
D) 0.99

Answer 1

Step-by-step explanation:

Slope of Expenditure line = Marginal propensity to consume (MPC) + Marginal propensity to invest (MPI) + Marginal propensity to government purchases (MPG) - Marginal propensity to import (MPM).

Here, MPC = 0.8. But, since planned investment, government purchases and net exports (= Exports - Imports) are both fixed values, this means investment, government purchases and net exports (including imports) are autonomous expenditures, and therefore,

MPI = 0, MPG = 0 and MPM = 0.

Slope of expenditure line = MPC = 0.8