Questions: The autonomous consumption expenditures and autonomous investment expenditures in an economy are 250 and 350, respectively. It is also observed that individuals spend 70% of their additional income on consumption. Write down the consumption function for this economy using the information provided above. (Round your response for the intercept term to the nearest whole number and for the slope term to one decimal place.) C=250+0.70 Y Write down the aggregate expenditure function for this economy using the information provided above. (Round your response for the intercept term to the nearest whole number and for the slope term to one decimal place.) AE=

The autonomous consumption expenditures and autonomous investment expenditures in an economy are 250 and 350, respectively. It is also observed that individuals spend 70% of their additional income on consumption. Write down the consumption function for this economy using the information provided above. (Round your response for the intercept term to the nearest whole number and for the slope term to one decimal place.) C=250+0.70 Y Write down the aggregate expenditure function for this economy using the information provided above. (Round your response for the intercept term to the nearest whole number and for the slope term to one decimal place.) AE=
Transcript text: The autonomous consumption expenditures and autonomous investment expenditures in an economy are $\$ 250$ and $\$ 350$, respectively. It is also observed that individuals spend $70 \%$ of their additional income on consu Write down the consumption function for this economy using the information provided above. (Round your response for the intercept term to the nearest whole number and for the slope term to one decimal place.) \[ C=250+0.70 Y \] Write down the aggregate expenditure function for this economy using the information provided above. (Round your response for the intercept term to the nearest whole number and for the slope term to one decimal place.) \[ A E= \]
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Solution

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Solution Steps

To answer the question, we need to derive the consumption function and the aggregate expenditure function using the given information.

Step-by-Step Solution:

  1. Consumption Function:

    • Autonomous consumption expenditures (\(C_0\)) = \$250
    • Marginal propensity to consume (MPC) = 70% = 0.70

    The consumption function \(C\) can be written as: \[ C = C_0 + MPC \cdot Y \] Substituting the given values: \[ C = 250 + 0.70Y \]

  2. Aggregate Expenditure Function:

    • Autonomous consumption expenditures (\(C_0\)) = \$250
    • Autonomous investment expenditures (\(I_0\)) = \$350
    • Marginal propensity to consume (MPC) = 0.70

    The aggregate expenditure function \(AE\) includes both consumption and investment: \[ AE = C + I \] Substituting the consumption function \(C = 250 + 0.70Y\) and the autonomous investment \(I_0 = 350\): \[ AE = (250 + 0.70Y) + 350 \] Simplifying this: \[ AE = 600 + 0.70Y \]

Final Answer:

  • Consumption Function: \[ C = 250 + 0.70Y \]

  • Aggregate Expenditure Function: \[ AE = 600 + 0.70Y \]

These functions represent the relationships between income and consumption, and between income and aggregate expenditure, respectively, in the given economy.

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