Chapter 9, Problem 6E

To determine

(a)

Y	C	I	G	X
$ 500	$500	$10	$20	$60
$600	$590	$10	$20	$40
$700	$680	$10	$20	$20
$800	$770	$10	$20	$0
$900	$860	$10	$20	-$20
$1000	$950	$10	$20	-$40

The value of MPC.

Answer to Problem 6E

Y	C	MPC
$500	$500
$600	$590	0.9
$700	$680	0.9
$800	$770	0.9
$900	$860	0.9
$1000	$950	0.9

Explanation of Solution

MPC = $\frac{Changeinconsumption}{Changeinincome}$

Wherein, Change in Income = ${\text{Y}}_{\text{1}}{\text{ - Y}}_{\text{2}}$

Y	C	MPC
$500	$500
$600	$590	0.9
$700	$680	0.9
$800	$770	0.9
$900	$860	0.9
$1000	$950	0.9

Economics Concept Introduction

MPC − The additional consumption resulting from an additional unit of income.

To determine

(b)

To write:

Y	C	I	G	X
$ 500	$500	$10	$20	$60
$600	$590	$10	$20	$40
$700	$680	$10	$20	$20
$800	$770	$10	$20	$0
$900	$860	$10	$20	-$20
$1000	$950	$10	$20	-$40

The value of MPS.

Answer to Problem 6E

The value of MPS is 0.10.

Explanation of Solution

Since income can only be either consumed or saved, therefore it can be written as

Y = C+S

Differentiating both sides with respect to Y

1 = $\text{MPC + MPS}$

Thus, MPS = $\text{1 - MPC}$

In this case,

MPS = $1-0.9$

MPS = 0.1

Economics Concept Introduction

MPS − The additional savings arising out of an additional unit of income.

To determine

(c)

Y	C	I	G	X
$ 500	$500	$10	$20	$60
$600	$590	$10	$20	$40
$700	$680	$10	$20	$20
$800	$770	$10	$20	$0
$900	$860	$10	$20	-$20
$1000	$950	$10	$20	-$40

The value of MPI.

Answer to Problem 6E

Y	I
$ 500	$10
$600	$10
$700	$10
$800	$10
$900	$10
$1000	$10

The MPI is zero.

Explanation of Solution

In this case, the investment is not changing with income level. It is fixed. Hence, the marginal propensity to invest is zero.

Economics Concept Introduction

MPI − The additional investment arising out of an additional unit of income.

To determine

(d)

Y	C	I	G	X
$ 500	$500	$10	$20	$60
$600	$590	$10	$20	$40
$700	$680	$10	$20	$20
$800	$770	$10	$20	$0
$900	$860	$10	$20	-$20
$1000	$950	$10	$20	-$40

The aggregate expenditure at each level of income.

Answer to Problem 6E

Y	C	I	G	X	AE
$ 500	$500	$10	$20	$60	$590
$600	$590	$10	$20	$40	$660
$700	$680	$10	$20	$20	$730
$800	$770	$10	$20	$0	$800
$900	$860	$10	$20	-$20	$870
$1000	$950	$10	$20	-$40	$940

Explanation of Solution

Aggregate expenditure at each level of income is consumption expenditure plus investment expenditure plus government expenditure and net exports.

Economics Concept Introduction

Aggregate expenditure− The expenditure made by different sectors of the economy to goods and services and the net exports.

To determine

(e)

Y	C	I	G	X
$ 500	$500	$10	$20	$60
$600	$590	$10	$20	$40
$700	$680	$10	$20	$20
$800	$770	$10	$20	$0
$900	$860	$10	$20	-$20
$1000	$950	$10	$20	-$40

The aggregate expenditure graphs.

Answer to Problem 6E

Explanation of Solution

Aggregate Expenditure graph will be sloping upwards. This is due to the increase in level of aggregate expenditure.

Y	C	I	G	X	AE
$ 500	$500	$10	$20	$60	$590
$600	$590	$10	$20	$40	$660
$700	$680	$10	$20	$20	$730
$800	$770	$10	$20	$0	$800
$900	$860	$10	$20	-$20	$870
$1000	$950	$10	$20	-$40	$940

Economics Concept Introduction

Aggregate expenditure− The expenditure made by different sectors of the economy to goods and services and the net exports.