(a) Suppose real GDP per person falls during a devastating recession, which in turn causes consumption to fall by 5%. Suppose there are no taxes in this economy. Would giving everyone 5% more income during the recession cause consumption to go up 5%? (b) An individual gets a salary increase from £50,000 to £75,000 per year. The individual saved £10,000 a year before the salary increase and £20,000 a year after the salary increase. Assume there are no taxes, the individual does not borrow, and the individual does not withdraw their savings. Calculate the individual's marginal propensity to consume.

(a) Suppose real GDP per person falls during a devastating recession, which in turn causes consumption to fall by 5%. Suppose there are no taxes in this economy. Would giving everyone 5% more income during the recession cause consumption to go up 5%? (b) An individual gets a salary increase from £50,000 to £75,000 per year. The individual saved £10,000 a year before the salary increase and £20,000 a year after the salary increase. Assume there are no taxes, the individual does not borrow, and the individual does not withdraw their savings. Calculate the individual's marginal propensity to consume.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter17: Capital And Time

Section: Chapter Questions

Problem 17.2P

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