1. Suppose that a rise in income from P60,000 to P70,000 leads to an increase in consumption from P47,000 to P54,000. a. Solve for the marginal propensity to consume (MPC) and marginal propensity to save (MPS). b. In a closed economy, what is the mathematical relationship between MPC and MPS? What explains this? C. What is the slope of the consumption function that can be derived from this? d. If consumption is P5,000 when income is zero, what is the consumption function derived from this?
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- 1. Suppose the households in a hypothetical economy has the following consumption function C= a + cYd. Where is the disposable income. The government in this economy imposes a tax rate of to households’ income (ex. A means that 10% of households’ income goes to tax payments). a. What is the equation that describes the disposable income of households? b. What is the Planned Expenditure Equation? Assume that government expenditure is exogenous and Investment function is given by the equation I = I-br Where is the interest rate. c. Derive the equilibrium output in the goods market and show that the multiplier in this model is 1/1c(1-t). d. How does and the tax rate affects this multiplier (e.g., what happens to multiplier if c increases cet.par. , or if tax rate increases, cet.par)?2. Consider an economy that is characterised by the following set of equations: C co + c¡Yp Yp Y – T I bo + bịY Government spending (G) and taxes (T) are constant. Note that investment (1) is proportional to output (Y). a) Solve for equilibrium output. b) Using your answer derived in (a) identify and discuss the multiplier. How does the relation between investment and output affect the value of the multiplier? c) For the multiplier to be positive what condition must be satisfied? Please note: The two questions are equally weighted in terms of marks. To help explain your answers and analysis, you should always attempt to use diagrams, mathematical demonstration where applicable and convey the economic intuitions behind the results. Do not forget to label your graphs. Key Marking criteria will include: • Initiative: Originality, innovativeness of answer • Assignment Structure: Clarity of aims, objective, structure and presentation • Quality of Writing: Readability and ability to convey…1. Use the following table with information on the consumption behavior of the people of Gotham to answer the following questions: Disposable Income Consumption $300 $440 $0 $200 a. What is the value of 'a' or autonomous consumption in this economy? b. What is the value of 'b’ or the Marginal Propensity to Consume (MPC) in this economy? Interpret the meaning of this MPC value in one sentence.
- 3. If the consumption function is C= $200 billion + 0.9Y, a) How much do consumers spend with income of $3 trillion? b) How much do they save?Q.1.9 If a household’s income falls from R12 000 to R10 000, and its consumption fallsfrom R9 500 to R8 000, then:(2)(1) The marginal propensity to consume is ‐0.8. (2) The marginal propensity to consume is 0.75. (3) The marginal propensity to consume is 0.2. (4) The marginal propensity to save is 0.15.2. Suppose that consumption equals $500 billion when the disposable income is $0 and that each increase of $100 billion in disposable income causes consumption to increase by $70 billion. a. Draw a graph of the consumption function using this information. The axes must be labeled correctly, and the consumption function should have at least two points on the graph (correct coordinates). b. What is the Marginal Propensity to Consume in this economy? How did you arrive at your answer? Please show your work. Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
- 2. We have the following information on the economy: - Aggregate consumption is $1,000 when aggregate disposable income is zero. - When aggregate disposable income is $17,500, aggregate saving is $2,500. a. Find the equation for the aggregate consumption function. b. The planned investment in this economy is $2,000. Find the equation for the aggregate expenditure function.3. If consumer spending increased by $25 billion, resulting as an equilibrium output increasing by $75 billion. What is the value of the MPC?1. What would happen to multiplier if investment were to be positively related to income? 2. is it possible for total saving to fall when people beome more thirfty? 3. What is meant by multiplier?Why shoul the value of multiplier rise when people spend more on consumption?
- 500 1,000 Aggregate output, Y (billions of dollars) Figure 8.1 Refer to Figure 8.1. An increase in the MPC Select one: Oa shifts the saving function downward. Ob.makes the caving function fatte Oashifts the consumption function upard. .2.makes the consumption function fatter) billions of dollars)1. Interpret what it means if MPC equals 0.95? 2. If your MPC is 0.9 and your income falls by $200, what will be your change in spending? 3. For each of the following determine whether there is movement along a consumption schedule (function), or a shift of the schedule. If there is a shift then indicate the direction of the shift and interpret that shift. a. Consumer’s expectations became more optimistic. b. An increase in the interest rate. c. There is a current low level of consumer durables on hand. d. Consumer incomes rise.1.In Figure 1, when disposable income is 0, how much is consumption, saving, autonomous consumption, and induced consumption? 2.In Figure 1, when disposable income is 2500, how much is consumption, saving, autonomous consumption, and induced consumption? 3.In Figure 1, when disposable income is 4,000, how much is the consumption, savings, autonomous consumption and induced consumption?