## Principles of Economics: Problems: Income-Expenditure Framework: Income and Expenditure Disequilibrium

Consider an economy like the U.S., only with all planned spending categories in round numbers:

- I--business investment spending--determined by business executives' "animal spirits"--$3 trillion/year
- G--government purchases--determined by politics--$3 trillion/year
- T--net taxes and transfers--determined by politics--$3 trillion a year
- X--exports of goods and services--determined by foreigners--$3 trillion/year
- C--consumption spending on domestically-produced commodities--determined by households according to the equation: C = c
_{0}+ c_{y}(Y - T) Y--total projected income--$14T

Suppose c

_{0}= 0 and c_{y}= 0.6. What is total planned expenditure E = C + I + G + X? Is it equal to planned income? What are people planning to do with respect to their holdings of cash?Suppose c

_{0}= $3 trillon and c_{y}= 0.4. What is total planned expenditure E = C + I + G + X? Is it equal to planned income? What are people planning to do with respect to their holdings of cash?Suppose c

_{0}= $3 trillion and c_{y}= 0.6. What is total planned expenditure E = C + I + G + X? Is it equal to planned income? What are people planning to do with respect to their holdings of cash?

￼4. Suppose c_{0} = 0 and c_{y} = 0.4. What is total planned expenditure E = C + I + G + X? Is it equal to planned income? What are people planning to do with respect to their holdings of cash?