Macroeconomics - Quiz 6

EC207 – Intro The MacroEconomics
Quiz 6
Professor Matthew Festa
The Keynesian Cross Graph and the multiplier
Due on Thurs Oct 25th. I will penalize if late





1) Draw the Keynesian Cross. Note where expenditures and production are on the x and y axis. Then Draw actual expenditure and then planned expenditure curves on the graph. Where is equilibrium and why? ( 3 points)



2) Write the consumption function and explain the components of it ( 2 points)



3) Explain the rationale behind autonomous consumption? How and why would consumption take place at this level? (1 point)



4) If the Marginal Propensity to consumer is 0.8, what is the multiplier? If The government increases spending by $2 million, how much will output increase. If they also cut taxes, how much will output increase? (3 points)




5) Show how this effect will look on the Keynesian Cross Curve. (1 point).