In the Keynesian cross, assume the consumption function is given by C=200+0.7(Y-T), planned investment is 300, and government purchases is 150 and taxes is 120. In this case, autonomous expenditure equals _______.A.200B.650C.566D.490
Question
In the Keynesian cross, assume the consumption function is given by C=200+0.7(Y-T), planned investment is 300, and government purchases is 150 and taxes is 120. In this case, autonomous expenditure equals _______.A.200B.650C.566D.490
Solution
In the Keynesian cross model, the autonomous expenditure is the sum of the intercepts of the consumption function, planned investment, and government purchases.
The intercept of the consumption function is the part of consumption that does not depend on disposable income, which in this case is 200.
So, the autonomous expenditure is calculated as follows:
Autonomous expenditure = Consumption function intercept + Planned investment + Government purchases Autonomous expenditure = 200 + 300 + 150 Autonomous expenditure = 650
So, the answer is B. 650.
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