Elucidate the aggregate expenditure function graphically

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Reference no: EM1348037

Suppose that the consumption function for the economy is given by C = 900 + .9Y, where C = consumption, Y = income, and that investment spending is I = 600. Values are measured in billions of dollars.

a. Elucidate the aggregate expenditure function graphically, labeling your graph with the appropriate numerical values.

b. What is the equilibrium level of income Y*? What would consumption and savins be at this point?

c. What is the marginal propensity to consume? Interpret the value in economic terms.

Reference no: EM1348037

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