Answer to Question #286693 in Macroeconomics for Msb

Question

In the Keynesian cross model, assume that the consumption function is given by 

C = 120+ 0.8 (Y - T). Planned investment is 200, government purchases and taxes are both 400. 

a. Graph planned expenditure as a function of income.

Answer 1

AE=C+I+G

AE=120+0.8(Y-400)+400+200

AE=0.8Y+400

AE=Y

Y=0.8Y+400

0.2Y=400

Y=2000

Graph of Planned expenditure as a function of Income