ECS 1601 ASSIGNMENT 3 SEMESTER 1 2023 UNIQUE NUMBER: 657947

Reference: Prescribed book PG 315  Spending may be equal to production and income. In this case production and income are at their equilibrium levels – there is no tendency to change.  Spending may be greater than production and income. In this case production and income will tend to increase. They are therefore not at their equilibrium levels.  Spending may be less than production and income. In this case production and income will tend to fall. They are therefore not at their equilibrium levels. 2. 1 Reference: Prescribed book PG 319 The value of induced consumption depends on two things:  the marginal propensity to consume (c) (which gives the slope of the consumption function)  the level of income (Y) 3. 1 According to the diagram the autonomous level of consumption is A1 and total autonomous spending is A2. This is because the points the consumption line and the aggregate spending line intersects the vertical axis represents the level of autonomous spending. This implies that investment is equal to W 4. 2 According to the diagram the autonomous level of consumption is A1 and total autonomous spending is A2. This is because the points the consumption line and the aggregate spending line intersects the vertical axis represents the level of autonomous spending. This implies that investment is equal to 5. 3 Before you attempt to pick the answer to a question out of the list of alternatives, try to work out what you expect to find amongst the alternatives. In this question, you would ask yourself: “What causes the consumption function to shift downwards?” The function is C = Co + cY and anything that increases Co will cause the curve to shift upwards. To finalise your answer, you need to look at the options and ask which one causes Co to decrease. 6. 1 Reference: Prescribed book PG 322 In contrast to consumption spending, investment spending is not primarily a function of income. The level of investment is usually regarded as independent of the level of income. 7. 2 Reference: Prescribed book PG 332 In an economy which consists of households and firms only, the size of the multiplier is determined by the marginal propensity to consume (c). The greater the marginal propensity to consume, the greater the multiplier will be. 8. 4 Ā = C + I + G + (X –Z) = 280 + 120 + 550 + (330 – 170) = 1 110 9. 3 MPS = 1 – MPC = 1 – 0.75 = 0.25 10. 3 Multiplier = 1/MPS = 1/0.25 = 4 11. 2 Equilibrium income = Multiplier * Ā= 4 * 1 110 = 4 440 12. 1 An increase in government expenditure is classified as an expansionary fiscal policy which increase aggregate demand in the economy at each price level.