Subpart (a):
MPC.
Subpart (a):
Explanation of Solution
The slope of the linear equation is the MPC; here, it is equal to 0.8. Thus, MPC is 0.8.
Concept Introduction:
Marginal propensity to consume: Marginal propensity to consume refers to the sensitivity of change in the consumption level due to changes occurred in the income level.
Marginal propensity to save (MPS): Marginal propensity to save refers to the sensitivity of change in the saving level due to changes occurred in the income level.
Subpart (b):
MPS.
Subpart (b):
Explanation of Solution
The MPS is evaluated as follows:
Thus, MPS is 0.2.
Concept Introduction:
Marginal propensity to consume: Marginal propensity to consume refers to the sensitivity of change in the consumption level due to changes occurred in the income level.
Marginal propensity to save (MPS): Marginal propensity to save refers to the sensitivity of change in the saving level due to changes occurred in the income level.
Subpart (c):
Consumption.
Subpart (c):
Explanation of Solution
Consumption can be calculated as follows:
Total consumption is $360.
Concept Introduction:
Marginal propensity to consume: Marginal propensity to consume refers to the sensitivity of change in the consumption level due to changes occurred in the income level.
Marginal propensity to save (MPS): Marginal propensity to save refers to the sensitivity of change in the saving level due to changes occurred in the income level.
Subpart (d):
APC.
Subpart (d):
Explanation of Solution
The average propensity to consume (APC) is evaluated as follows:
Average propensity to consume is 0.9.
Concept Introduction:
Marginal propensity to consume: Marginal propensity to consume refers to the sensitivity of change in the consumption level due to changes occurred in the income level.
Marginal propensity to save (MPS): Marginal propensity to save refers to the sensitivity of change in the saving level due to changes occurred in the income level.
Subpart (e):
Level of saving.
Subpart (e):
Explanation of Solution
The level of saving can be evaluated as follows:
Total saving is $40.
Concept Introduction:
Marginal propensity to consume: Marginal propensity to consume refers to the sensitivity of change in the consumption level due to changes occurred in the income level.
Marginal propensity to save (MPS): Marginal propensity to save refers to the sensitivity of change in the saving level due to changes occurred in the income level.
Subpart (f):
APS.
Subpart (f):
Explanation of Solution
The average propensity to saving (APS) is evaluated as follows:
Average propensity to save is 0.1.
Concept Introduction:
Marginal propensity to consume: Marginal propensity to consume refers to the sensitivity of change in the consumption level due to changes occurred in the income level.
Marginal propensity to save (MPS): Marginal propensity to save refers to the sensitivity of change in the saving level due to changes occurred in the income level.
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Chapter 10 Solutions
MACROECON.S (LL) W/CONNECT ACCESS>CUST
- Suppose you estimate the consumption functionarrow_forwardi need 4, 5, 6 parts Solutionarrow_forwardConsumption Function Suppose that a country's consumption function is given by C=(9\sqrt(I)+0.8\sqrt(I^(3))-0.3I)/(\sqrt(I)) where C and I are expressed in billions of dollars. (a) Find the marginal propensity to save when income is $25 billion. (b) Determine the relative rate of change C with respecy to I when income is $25 bilion.arrow_forward
- TOPIC: Consumption and Savingarrow_forwardFind 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.arrow_forward18. According to the income and consumption schedules shown above, the marginal propensity to consume is(A) 1.33(B) 0.90(C) 0.80(D) 0.75(E) decreasing as real disposable income How come MPC equals 0.75?arrow_forward
- I consumed all my income at every level of income.Draw my consumption and saving function.What are my MPC and MPS? Explain why it must always be true that MPC+MPS equal to 1?arrow_forward#3#arrow_forwardThe following table shows data for the economy before the decrease in saving. Suppose that the decrease in saving causes consumption to rise from $280 million to $320 million. Assume Say's law holds in this economy. Fill in the data for the economy after the decrease in saving. Before Saving Decrease After Saving Decrease Consumption (C) $280 million $320 million Investment (I) $200 million $ million Government Purchases (G) $250 million $ million Exports (EX) $500 million $500 million Imports (IM) $300 million $300 million As a result of the decrease in saving, total expenditures will .arrow_forward
- Use the graphs to illustrate the effect of a decrease in consumer income expectations on the consumption (C) function and the savings (S) function. Real consumption 500 450 400 350 300 250 200 150 100 50 0 0 50 C = DI с 100 150 200 250 300 350 400 450 500 Real disposable income (DI) Real savings 500 450 400 350 300 250 200 150 100 50 0 -50 -100 -150 0 50 100 150 200 250 300 350 Real disposable income (DI) S 400 450 500arrow_forwardWhich of the following is correct? When the consumption function lies above the 45-degree line, households (a) spend on consumption a decreasing percentage of any increase in income.(b) save all of any increase in income.(c) are dissaving.(d) spend on consumption an increasing percentage of any increase in income. Give proper explanatationsarrow_forward(a) Explain the difference between induced consumption expenditure and autonomous consumption expenditure. Why is not all consumption expenditure induced expenditure? (b) How is it possible for households to have a negative savings rate and what has caused this negative household savings rate? Is this negative household savings rate sustainable in the long run?arrow_forward