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In The Keynesian Cross Assume That The Consumption Function Is Given Byc = 500 + 0 8 (Y

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a Suppose that the real interest rate (r) is 5. Write the equation of the planned
expenditure ( PE,). Draw planned expenditure ( PE,) as a function of income. Label this
graph quot;figure 1quot;.lt;
PE=C+G+Ilt;
PE=500+0.8(Y-1000)+100-50r+1000-
=800+0.8Y+50re
=1050+0.8Y-
b. Draw a 450 line in figure 1 and find the value of equilibrium level of income on the
Keynesian cross (Y1).~
1050+0.8Y=Y-
0.2Y=1050-
Y*-5250-
c Calculate the government purchases multiplier. And interpret your answer.
5255-5250=5-
AS G ADD 1, Y INCREASE 5Macroeconomics