Assume in a simple economy that the level of saving is -$800 when aggregate output equals zero and that the marginal propensity to save is 0.25. Derive the saving function and the consumption function. O A. S= -800-0.25Y and C= 800 - 0.75Y O B. S= -800 +0.25Y and C= 800 +0.75Y O C. S= -800-0.025Y and C= 800 -0.075Y O D. S= - 800-0.25Y and C= 800 + 0.75Y Consider the graph of these functions. The consumption function has a y-intercept of and is The saving function has a y-intercept of and is The consumption curve crosses the 45-degree line at a level of output of (Enter your response as an integer.)
Q: The economy of a country is characterized by the following equations: Aggregate consumption function…
A: aggregate consumption determines aggregate saving, because saving is defined as the portion of…
Q: In a Keynesian cross diagram, if the marginal propensity to save increases, a) the aggregate…
A: In a Keynesian cross diagram, if the marginal propensity to save increases, the savings function…
Q: If the interest rate increases, which of the following will occur? O A. The quantity of planned…
A: Answer: (1). B Explanation: Due to an increase in the interest rate, there will be an upward…
Q: If the simple spending multiplier is 8, the marginal propensity to consume is O a. 8 1/4 wered O c.…
A: The spending multiplier represents the change in the real gross domestic product or aggregate…
Q: The slope of the IS curve is flatter when... O a. the transfer payment multiplier is large O b. the…
A: The IS curve explains the nature of the goods market and it describes the relationship between the…
Q: Suppose disposable income increases from $7 trillion to $8 trillion. At the same time, consumption…
A: Disposable income: It is that portion of an individual’s overall income over which the recipient of…
Q: B CF 3 1 2 Disposable income (trillions of 2005 dollars) In the above figure, at a disposable income…
A: Disposable income, the part of the revenue of a person for which the receiver retains full control.…
Q: The transfer payment multiplier is smaller than the expenditure multiplier by the: O a. Transfer…
A: When talking about the multiplier impact of transfer payment and expenditure, it can be said that…
Q: Because of the multiplier, a one-time change in expenditure will generate more additional real GDP…
A: Since you have asked multiple questions, we will solve the first question for you. If you want any…
Q: A reduction in the tax rate might lead to an increase in the growth rate of potential output if... O…
A: Generally a reduction in tax rate is considered the fiscal expansionary role of central government…
Q: Given that autonomous spending is 100 billion, disposible income is 20 billion, and marginal…
A: C = a + bY Where C= Consumption expenditure in aggregate a= Autonomous consumption…
Q: Assume in a simple economy that the level of saving is -500 when aggregate output equals zero and…
A: The MPC is the marginal propensity to consume, which describes the level of income spent on…
Q: Consider an economy with no government, imports, or exports, and with fixed prices and interest…
A: The economics as a study is based upon the idea that the resources which the economies have are…
Q: If the average propensity to consume is 0.75, and the marginal propensity to consume is 0.70, if…
A: Change in Consumption=Marginal Propensity to Consume×Change in Income Spending Multiplier=11-MPC As…
Q: If the marginal propensity to consume is equal to 0.70 and income rises by $20 billion in an…
A: The marginal propensity to consume measures the change in consumption when there is a change in the…
Q: What is the effect of an increase in investment? When investment increases, O A. aggregate demand…
A: Investment is the part of aggregate demand.
Q: What are the two equivalent formulas for investment multiplier? O A. 1 and MPC 1- MPS OB. 1- MPC MPC…
A: We know that aggregate output in closed economy is given by Y = C+I+GWhere C =c+MPC×YSo Y=…
Q: Refer to Figure 3. The marginal propensity to consume equals * O 0.80 О 090 О 0.75 O 0.85
A: Marginal propensity to consume = Chnage in consumption / Change in income
Q: The total expenditure in Macroland begins with these initial levels (in trillions of dollars): GDP =…
A: Consumption function: C = Ca + MPC (Y -T) Where C is consumption Ca is autonomous consumption MPC is…
Q: The immediate determinants of investment spending are the: OA Interest rate and the expected price…
A: Investment spending depends upon various factors, such as disposable income, marginal propensity to…
Q: When the general price level rises, Select one: O a. investment rises as a result of the multiplier…
A: The one reason due to which the aggregate demand curve slope downwards is the real wealth effect.…
Q: In the income-expenditure model, if autonomous investment decreases by $10 billion, a. planned…
A: The income expenditure model shows the relationship between income and expenditure in an economy. It…
Q: Which of the following statements are correct? Select one: O a. Households smooth their consumption…
A: In macroeconomics, the household sector consumes the final items created by the production sector.…
Q: A household that is a net saver owes less money to its creditors than it has saved or has lent out…
A: The amount that is charged by the lender on any principal amount that is being borrowed by a…
Q: 1. Show that equilibruim level of income is at a point where consumption plus investment schedules…
A: Ques 1) Y = C+ I , shows the aggregate expenditure . The Equilibrium is the point at which aggregate…
Q: If disposable income increases by $1 and consumption goes up by $0.80, we can conclude that... O a.…
A: Lord K.M.Keyes explains the relationship between consumption (C) and income (Y), it is known as the…
Q: If Wanda's income is reduced to zero after she loses her job, her consumption will be and her saving…
A: Every individual needs to consume in order to survive. Hence even if an individual's income is zero,…
Q: Which of the following would not increase consumption spending? O Decreased disposable income.…
A: Consumer spending or consumer expenditure refers to the total amount the consumer is spending on the…
Q: Assume the marginal propensity to save is 0.10. Firms become optimistic and increase investment…
A: Real GDP is the value of final goods and services produced in the economy within a given period of…
Q: During 2019, a country reported that its real GDP increased by $3.0 billion. If the slope of its…
A: Slope of aggregate planner expenditure is the marginal propensity to consume . And we know that…
Q: Suppose that equilibrium output in a closed economy is 1,680, consumption 1,260 and investment is…
A: In Keynesian macroeconomics, aggregate demand plays a major role because according to Keynesian…
Q: The marginal propensity to consume (MPC) can best be defined as that fraction of O real disposable…
A: Consumption spending refers to the total money spent on the final goods and services by individuals…
Q: If, in an economy, a $200 billion increase in consumption spending creates $200 billion of new…
A: Marginal propensity to consume quantifies the induced consumption for every additional dollar of…
Q: When the general price level falls Select one: a. investment falls as a result of the real wealth…
A: The real wealth effect explains that if the price level decreases, then the purchasing power of the…
Q: Refer to problem 2. The slope of the aggregate expenditure function is О .10 О 0.10 O 0.60 O 0.70
A: The aggregate expenditure represents the current market value of all the final goods and services…
Q: Which of the following will shift the consumption function upward? O a. An increase in disposable…
A: As the income of consumer increases, they can spend more money on consuming the goods and services.…
Q: Assume in a simple economy that the level of saving is - $800 when aggregate output equals zero and…
A: In the Keynesian theory when the price level in the economy is assumed fixed then the economy…
Q: Answer the following questions using information from the pieture below: a) Construct the…
A: a. Consumption function = C0 + bY, where, C0 is the autonomous consumption (consumption at…
Q: If the consumption function is of the form [C= 80 + 0.4 Y, the MPS equal: Lütfen birini seçin: O A.…
A: Consumption function given above is of the form C= c+bY ie 80+0.4Y Where c is autonomous consumption…
Q: According to lhe Bureau ol Econoinic Analysis, during the recession of 2007– 2009, household saving…
A: People generally consume less and save more during a recession as they expect the income to be low…
Q: In a model with no government or foreign sector, if autonomous consumption is c30, investment is…
A: MPC is the Marginal propensity to consume which shows the ratio of change in change in consumption…
Q: Suppose marginal propensity to consume (MPC) is between 0 and 1. This implies that O saving will…
A: The measure that tends to depict the change in the levels of consumption of consumer with respect to…
Q: Suppose that the level of GDP increased by $100 billion in an economy where the marginal propensity…
A: The standard life of the added generated via the assembly of products and services during a country…
Q: The total expenditure in Macroland begins with these initial levels (in trillions of dollars): GDP =…
A: Consumption function: C = Ca + MPC (Y-T) Where C is consumption Ca is autonomous consumption MPC is…
Q: Consumption function for a country; Let C = 100 + 0.75Y. Planned investments 1 = 200. In this case…
A: Since you have posted a question with multiple sub-parts, we will solve first three subparts for…
Q: An inflationary gap is the amount by which: O Equilibrium GDP falls short of the full-employment…
A: Definition of Inflationary gap it measures the difference between the current GDP and GDP with full…
Q: Autonomous consumption is O consumption spending that depend on the level of income. O consumption…
A: In an economy, consumption refers to the purpose for which people make economic activities and…
Q: All of the following are true when there is an unplanned decrease in inventories, except: O a.…
A: Inventory is the set of goods, materials, and other items that helps to achieve the resale goal of…
Q: Suppose two successive levels of disposable personal income are $13.8 and $18.8 billion,…
A: MPC ( marginal propensity to consume) is the share of increased disposable income that spend on…
Q: In an economy, autonomous consumption is $10. If Income is $90 and the mpc is 0.9, how much is…
A: Marginal propensity to consume refers to change in consumption with respect to change in income.…
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
- 9. Suppose Amal calculates her permanent income by adaptive expectations . Year 2020 Amal's permanent income was 38,000 , and year 2021 actual income is 41,000 . Assume that , long - run marginal to consume is 0.90 and short - run marginal propensity to consume is 0.28 . What is her consumption expenditure year 2021 ? O 36.774 O 35,040 O 40.226 O 33.454 O 34.740 O None of the above is correct1. Show that equilibruim level of income is at a point where consumption plus investment schedules intersect the 45 degree line. 2. Suppose the level of autonomous investment in an economy is K200,000 and the consumption function is given below as c = 80+0.8Y, what will be the equilibrium level of income. 4.if MPcC is 0.8, what will be the increase in the level of income if investment is increased to K400,000. 5. What increase in investment is needed to raise the income by K4000, if MPC is 0.75? How much will be the increase in consumption and saving due to this increase in income. 3. Given the consumption level C= 50 + 75Y, if we assume autonomous investment is K200,000 at what level of income will savings become equal to investment?a) Draw a consumption function and label the axes.b) Suppose that your friend has a consumption function of the form y=1.4x+200. Is this function sustainable in the long run? Why or why not?c) Suppose that your consumption function is y=0.75+1000. What is your marginal propensity to consume? What is your autonomous expenditure?d) State the permanent income hypothesis.e) Suppose that I raise your income today by $10, and lower it tomorrow by $10. How would your behavior change according to the consumption function (aka Keynesian, aka rule-of-thumb) model? And what about according to the permanent income hypothesis model?
- Assume in a simple economy that the level of saving is –500 whenaggregate output equals zero and that the marginal propensity tosave is 0.2. Derive the saving function and the consumption func-tion, and draw a graph showing these functions. At what level ofaggregate output does the consumption curve cross the 45° line?Explain your answer and show this on the graph.Consider the following functions for consumption and investment: C = 1,000 + (2/3)*(Y – T) and I = 1,200 – 100*r. Furthermore, Y = 8,000, G = 2500, T = 2,000. Compute private, public, and national savings for this economy, and find the equilibrium real interest rate (r). Assume that G declines by 500 units. How will it change your answers in part (a)? What happens to the national savings, given everything else, if the public decides to consume less out of their disposable income (assume that the propensity of consume falls by 10 percent)? Given your answer in part (c), what happens to investment and real interest rate? Answer all four.Suppose that the real interest rate is 6%. Next, assume that some factors changes, such that the expected rate of return, declines by  two percentage points at each prospective level of investment. Assuming no change in the real interest rate, by how much and in what direction will the investment change?  which of the following might cause this change: (a) a decision to increase inventories; (b) an increase in excess production capacity.
- (a) Suppose in a simple Keynesian economy, planned consumption function is given by C=250+0.65(Y-T). Planned investment, government purchases, taxes are $100 million, $100 million and $150 million respectively. What is MPC, MPS and autonomous consumption Derive the saving function. What is the equilibrium level of income? Y= AD=C+I+G If government purchases increase to $150 million, what is the new equilibrium level of income? What level of government purchases is needed to achieve an income of $2000 million? From question e) you get the newly government purchase. Now find out the multiplier value What is the amount of shift in AD curve? [Use the multiplier value from e)] (b) In a self-regulating economy “X”, labor supply is 40 million but labor demand is 10 million. What will happen in goods and service market simultaneously? Explain this situation with relevant graph. Based on your findings in a) is it denoting long run equilibrium? If not, will the economy be able to restore…5 3. permanent Income Hypothesis a) suppose that beta=.9 and R= 2222 (that is ~22%). For an individual who acts according to the PIH, will their consumption next period be higher than current consumption or lower? b) What is the main crucial difference between the Keynesian Consumption function and the consumption function derived from the PIH (or Lifetime Income Hypothesis)? c) If Present Value of future income stream is 500,000 and a person has a beta of.8, how much will their consumption go up today if only today's income increases by 1000? How much will their consumption increase (approximately) if their income goes up by 1000 in all periods?The saving function is given as:- S = -25 +0.25Y Calculate the equilibrium level of income in the economy if it is given that the planned investment is $200 million.
- For an economy the following functions have been given:C = 100 + 0.8YS = -100 + 0.2YI = 120 – 5rMs = 120Md = 0.2Y – 5rCalculate the following:5.1.1. IS equation 5.1.2. LM equation 5.1.3. Equilibrium level of income 5.1.4. Equilibrium level of interest rate. 5.1.5 Calculate National saving. 5.1.6 Calculate money demand 5.1.7 Find consumptionFind the equilibrium level of GDP (income or V) demanded in an economy in which investment (1) is always $300, net exports (X-IM) are always - 550, government expenditures (G) and taxes (T) are each equal to $400, and the consumption function is described by the following algebraic equation: C = 150 + 0.75Dl DI is disposable income. How much saving (5) is there at the equilibrium level of income. Hint: (1) Dl = Y (national income or GDP) minus taxes (Y-T) (2) Income (Y) not consumed (C) must be saved (S). This means that S = Y-C. (3) to answer this you have to set Y=AE or Y=C+1+G (X-IM), and solve for Y. Then you have to solve for S.Assume that Andrew Marcus is 25 years old and expects to live until the age of 75. (a) If he wins €20 million in cash (after taxes) in the lottery and retires, how much will he consume each year if he wants to have constant consumption and use up all his wealth by the time he dies? Assume the real interest rate is zero. (75 words max) (b) If his total income in the year he wins the lottery is his lottery winnings, what will his average propensity to consume be for that year? (75 words max) (c) If he has no other earnings in later years but continues his constant consumption, what will his average propensity to consume be for those later years? (75 words max) (d) What is Andrew's "permanent income" in the year he wins the lottery? What is his "transitory income"? (75 words max)