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3 marksBasic Keynesian Models

CAPE Economics Unit 2 · 2011 · Paper 2 · Question 2(c)(i)

An economy has aggregate expenditure defined by: Consumption (C) = 100 + 0.9Y, Investment (I) = 200, Government Spending (G) = 50.

Calculate the equilibrium level of income.

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Other parts of this question

  1. 2(a)(i)Define marginal propensity to consume (MPC).[2 marks]
  2. 2(a)(ii)Define average propensity to consume (APC).[2 marks]
  3. 2(a)(iii)Define autonomous consumption.[2 marks]
  4. 2(b)Using a graph, explain the Keynesian consumption function showing how the MPC and APC are affected by an increase in income.[6 marks]
  5. 2(c)(ii)Calculate the multiplier in the economy.[2 marks]
  6. 2(d)Identify four major determinants of aggregate consumption and explain how each determinant functions.[8 marks]

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