National Income, Inflation and Economic Policy

Surname 1
National Income, Inflation and Economic Policy
Student’s Name
Course
Professor
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Surname 2
Question 1
For a closed economy, the formula for aggregate supply is expressed as
C=a+ b(Y −T )
Where C is aggregate consumption, a is the autonomous spending whereas b is the
marginal propensity to consume. The (Y-T) indicated is real aggregate disposable income,
and it is the difference between the real aggregate national income and the taxes.
For the table provided the computation for each of the element in the aggregate consumption
column is given as shown below:
C=a+ b(Y −T )
For aggregate consumption:
100
C= 46+0.8(100-20)
C= 110
200
C= 46+0.8(200-20)
C= 190
300
C= 46+0.8(300-20)
C=270
400
C= 46+0.8(400-20)
C= 340
500
C=46+ 0.8(500-20)
C= 430

Surname 3
600
C= 46+0.8(600-20)
C= 510
Given that the economy of Atlantis is closed, the formula for the aggregate expenditure will
include, C which is the aggregate consumption, Ip which is the planned investment and G which
is government spending. In this case, both Ip and G are constant.
Therefore, aggregate expenditure, AE=C + I P +G.
Substituting figures at aggregate income of:
100 we have
AE= C+Ip+G
AE=110+ 30+20
AE= 160
At 200
AE= 190+30+20
AE= 240
At 300
AE= 270+30+20
AE= 320
At 400
AE= 340+30+20
AE= 390
At 500
AE= 430+30+20
AE= 480
At 600
AE= 510+30+20
AE= 560