## 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 = c0 + cy(Y - T)
• Y--total projected income--$14T 1. Suppose c0 = 0 and cy = 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? 2. Suppose c0 =$3 trillon and cy = 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?

3. Suppose c0 = \$3 trillion and cy = 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 c0 = 0 and cy = 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?