Carol Majestica

01012190047

CHAPTER 28

1. 4 component of aggregate expenditure : consumption, investment, government

expenditure on goods and services and net exports. Two way link with real GDP are
an increase in real GDP increases aggregate expenditure; vice versa.

2. The consumption function is the relationship between consumption and disposable

income (income after taxes). Factors that cause movements along or on the
consumption function are: Personal Income (rather household income ), Taxes on
income, Disposable income: because Consumption function relates consumption
expenditure to National income, rather disposable income after incomes tax.
3.
 Households can only spend their disposable income on consumption or save
it as savings. The relationship between consumption expenditure and disposable
income, other things remaining the same, is the consumption function. The
relationship between saving and disposable income, other things remaining the
same, is the saving function. So, disposable income = consumption expenditure +
saving.

As you can see from the graph, Point D is when disposable income and
consumption in equilibrium. when disposable income increases, the consumption
expenditure also increases. It is also the same with the saving function which when
the disposable income increases, saving increases. And when the disposable
income > consumption expenditure, it is saving (point E and F). While when the
disposable income < consumption expenditure, it is dissaving (point A,B, and C).

4. Because a person has to spend a minimum amount to keep his body and soul together.
This is called autonomous consumption. When income is very low, consumption
expenditure is higher than income.

5.

As you can see from the graph, aggregate planned expenditure increases as real
GDP increases. We can know this from the curve AE which is also Induced expenditure
because of induced expenditure is consumption expenditure minus imports, which varies
with real GDP.
Aggregate planned expenditure may differ from actual aggregate expenditure
because firms can have unplanned changes in inventories. These inventories is a
component of investment. So unplanned changes in inventory equal to unplanned
investment. When aggregate expenditure exceeds real GDP, inventories decreases so firm
will increases production and real GDP will increases. When aggregate planned expenditure
is less than real GDP, inventories increases so firms will cut the production and real GDP will
decreases.

6. Where aggregate expenditures in some period equal real GDP in that period.
equilibrium is found at the level of real GDP at which the aggregate expenditures
curve crosses the 45-degree line. It follows that a shift in the curve will change
equilibrium real GDP

7. a.
Real GDP C  I  G  Aggregate planned
(billions of (billions of (billions of (billions of expenditure
2005 dollars)  2005 dollars)  2005 dollars)  2005 dollars)  (AE=C+I+G+X-M)
100  150  150  150  450
200  200  150  150  500
300  250  150  150  550
400  300  150  150  600
500  350  150  150  650
600  400  150  150  700
700  450  150  150  750
800  500  150  150  800
900  550  150  150  850

b. equilibrium level of real GDP is 800 because it is in equilibrium when real GDP =
aggregate planned expenditure

8. Diketahui :
C = 2000 + 0.8Yd
t = 1500 (autonomous)
M = 500 (autonomous)
X = 2500
G = 3000
I = 2000

a) Persamaan kurva AE :
AE = C + I + G + X-M
= 2000+0.8Yd + 2000 + 3000 + 2000
= 9000+0.8Yd

b) Equillibrium expenditure :
AE = Y
9000+0.8Yd = Y
9000 = Yd – 0.8Yd
9000 = 0.2Yd
Yd = 9000 ÷ 0.2
Yd = 45000
 1
MM =
1−SLOPE AE
1
MM =
0.2
MM = 5

c) Investasi turun jadi 1000

∆ AE
MM =
∆ AD
∆ AE
5 =
1000
∆AE = 5000

d)Real GDP Equilibrium

AE = C + I + G + X-M
= 2000+0.8Yd + 2000 + 3500 + 2000
= 9500+0.8Yd

AE = Y
9500+0.8Yd = Y
9500 = Yd – 0.8Yd
9500 = 0.2Yd
Yd = 9500 ÷ 0.2
Yd = 47500