Homework Answers
1. Because there are no taxes , investment , government expenditure. So, aggregate expenditure is determined by consumption level.
(a) Equilibrium occurs where disposable income equals consumption. Therefore, the equilibrium level of consumption is $21,000.
(b) MPC = (Change in C/ Change in Yd) = (14000-7000)/(10,500-0)= (7000/10500)= 0.67
MPS = 1- MPC = 1-0.67 = 0.33
(c) Autonomous consumption is the amount of consumption level when dispoable income =0. Therefore, the autonomous consumption = $7000.
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