macroeconomics 2050, review exercises for exam 3\n1. answer the following questions about the keynesian…

Brief Explanations:

• Autonomous expenditures in the Keynesian model are expenditures that do not depend on the level of income. In the given model, $a$ (autonomous - consumption) and $I$ (investment) are autonomous expenditures. They are the spending that would occur even if income ($Y$) were zero.
• The 45 - degree line represents all points where aggregate expenditure (AE) equals income ($Y$). It serves as a reference line to find the equilibrium level of income in the economy. At any point on this line, $AE = Y$.
• Equilibrium income in the graph is at the point where the aggregate - expenditure line ($AE = C + I$) intersects the 45 - degree line. In the graph, it is at $Y_e$.
• If the level of investment increases from 400 bil. to 500 bil., the aggregate - expenditure line ($AE = C+I$) will shift upward by the amount of the increase in investment (100 bil.). This is because investment is a component of aggregate expenditure, and an increase in investment directly adds to aggregate expenditure at each level of income.

Answer:

• Autonomous expenditures are $a$ and $I$. They are expenditures independent of income level.
• The 45 - degree line represents points where $AE = Y$, used to find equilibrium income.
• Equilibrium income is at $Y_e$ (the intersection of $AE$ and the 45 - degree line).
• The aggregate - expenditure line will shift upward by 100 bil.