PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
7th Edition
ISBN: 9781260110920
Author: Frank
Publisher: MCG
expand_more
expand_more
format_list_bulleted
Question
Chapter 13, Problem 5RQ
To determine
Diagrammatic representation of the consumption function and explain the economic meaning of movement from left to right and a parallel upward shift of the consumption function.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
During the 2012 fiscal year, households in an economy spent 80 per cent of their disposable income on consumption as well as GH¢300 consumption expenditure which is independent of income. Total government expenditure which stood at GH¢800 was supposed to be financed from a proportional tax levy of 50 per cent of national income and a VAT of GH¢100. Total private investment spending was made up of GH¢400 whereas export was GH¢400 and anautonomous import of GH¢500. Also, marginal propensity to import was 0.15
Determine the equilibrium national income for this economy.
During the 2012 fiscal year, households in an economy spent 80 per cent of their disposable income on consumption as well as GH¢300 consumption expenditure which is independent of income. Total government expenditure which stood at GH¢800 was supposed to be financed from a proportional tax levy of 50 per cent of national income and a VAT of GH¢100. Total private investment spending was made up of GH¢400 whereas export was GH¢400 and anautonomous import of GH¢500. Also, marginal propensity to import was 0.15.1. Determine the equilibrium national income for this economy.2. Determine the consumption and savings levels at equilibrium national income.3. Find the size of the (expenditure) multiplier.4. Determine the new equilibrium level of income if government expenditure increases by GH¢70.5. If full employment output is 2000, what macroeconomic problem does this economy face? 6. In what direction should government expenditure change in order to achieve full employment output? 7. Determine…
describe what is held constant along the consumption function.
Chapter 13 Solutions
PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
Knowledge Booster
Similar questions
- Home equity is the single largest component of net wealth for most families in the United States. If home equity falls a. autonomous consumption will decrease, shifting the aggregate planned expenditure line downward b. the marginal propensity to consume will decrease, decreasing the slope of the aggregate planned expenditure line c. autonomous consumption will increase, shifting the aggregate planned expenditure line upward d. the marginal propensity to consume will decrease, increasing the slope of the aggregate planned expenditure line e. autonomous consumption will decrease, shifting the aggregate planned expenditure line upwardarrow_forwardIf the price of your cell phone contract increases from R 700 to R 900 over a period of one year and your income rises from R15 000 to R15 500 during that same period, your nominal income has… a) Increased, and your real income has increased. b) Increased, but your real income has decreased. c) Decreased, and your real income has decreased. d) Increased, but your real income has remained the same.arrow_forwardThe graph shows the relationship between real disposable income and planned consumption. The horizontal axis measures real disposable income, while the vertical axis measures the level of planned consumption. The graph shows a consumption function, represented by an upward-sloping, straight line. The consumption function intercepts the vertical axis at a point labeled A. The graph also shows a 45-degree line that passes through the origin. The consumption function and the 45-degree line intersect at a point labeled B. Refer to the above figure. Dissaving occurs, A. to the left of point B. B. to the right of point B. C. only at point A. D. only at point B.arrow_forward
- Consider a hypothetical economy in which the marginal propensity to consume (MPC) is 0.75. That is, if disposable income increases by $1, consumption increases by 75¢. Suppose further that last year disposable income in the economy was $500 billion and consumption was $450 billion. On the following graph, use the blue line (circle symbol) to plot this economy's consumption function based on these data.arrow_forwardSuppose the price level reflects the number of dollars needed to buy a basket of goods containing one can of soda, one bag of chips, and one comic book. In year one, the basket costs $7.00. In year two, the price of the same basket is $6.00. From year one to year two, there is at an annual rate of . In year one, $21.00 will buy baskets, and in year two, $21.00 will buy baskets. This example illustrates that, as the price level falls, the value of money .arrow_forwardConstruct a consumption function from the data given here and determine the MPC. Given the consumption function in the above question, what is the relationship between disposable income and consumption? Is it direct or indirect and then explain what it means.arrow_forward
- Suppose that the Federal funds rate rose from 3% to 6% during the year. What would you expect to happen to the rate of growth in real consumption, and in the consumption/income ratio, under the following circumstances? (A) The corporate bond rate rose from 6% to 9%. (B) The corporate bond rate remained unchanged at 6%. (C) The stock market declined 20%. (D) The stock market was unchanged. (E) The unemployment rate rose from 5% to 6%. (F) The unemployment rate was unchanged.arrow_forwardThe MPC measures the relationship between: a change in consumption and a change in income. change in consumption and savings. changes in consumption and changes in savings. the proportion of income to consumption at any given level of income. the total level of consumption and the total level of saving.arrow_forwardSuppose that a new free trade agreement allows the economy to import cheaper goods from overseas, thereby decreasing the general price level. Adjust the following graph by either shifting the consumption function curve or the initial point on the consumption function curve (A) to illustrate the impact of a fall in the price level.arrow_forward
- Induced consumption is:(a)the part of consumption which is independent of the level of income.(b)the minimum level of consumption that is financed from sources other than income.(c)The maximum level of consumption that is financed from sources other than income.(d)shown by the slope of the consumption functionarrow_forwardSuppose an economy has a marginal propensity to consume of 0.66 along with $38,039 consumption taking place when disposable income is $44,238. What would disposable income be if you observe a consumption level of $45,239? Round your answer to two digits after the decimal.arrow_forwardIf in an economy the consumption level is given as $110 while the disposable income is $220 find the APCarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you