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- Assume in a simple economy that thc level of saving is -500 when aggregate ourput equals zero and that the margina! propensity to save is 0.2. Derive the saving function and the consumption function, and draw a graph showing these func- tions. At what level of aggregate ouiput does the consumption curve cruss the 45° line? Explain your answer and show this un the graph.The Life-Cycle/Permanent Income Model of Consumption makes a different prediction from the Keynesian Model, about how Consumption reacts to an increase in current income. Which of the following is the best description of the difference? O In the Keynesian Model, consumers will increasktheir spending by the mpc times the increase in income. In the Life-Cycle/Permanent Income Model, consumers will not increase their spending by much unless they believe that the increase in their income is permanent. O In the Life-Cycle/Permanent Income Model, consumers will increase their spending by the mpc times the increase in income. In the Keynesian Model, consumers will only increase their spending if they believe that the increase in their income is temporary. O In the Keynesian Model, consumers will increase their spending by the mpc times the increase in income. In the Life-Cycle/Permanent Income Model, consumers will only increase their spending if they believe that the increase in their income…The following questions refer to this table: a.At each level of output, calculate saving. At each level of out-put, calculate unplanned investment (inventory change).What is likely to happen to aggregate output if the economyproduces at each of the levels indicated? What is the equilib-rium level of output?b.Over each range of income (2,000 to 2,500, 2,500 to 3,000, andso on), calculate the marginal propensity to consume. Calculatethe marginal propensity to save. What is the multiplier?c.By assuming there is no change in the level of the MPC andthe MPS and planned investment jumps by 200 and is sus-tained at that higher level, recompute the table. What is thenew equilibrium level of Y? Is this consistent with what youcompute using the multiplier?
- Assume in country Y, the average marginal propensity to save is 0.2. When the aggregateincome is zero, consumers spend 50 to consume. Derive the saving function and consumptionfunction for this country. What happens to consumption when the propensity to savedecreases to 0.1? Explain your answer and show this on the graph.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.| Assume in country Y, the average marginal propensity to save is 0.2. When the aggregate income is zero, consum- ers spend 50 to consume. Derive the saving function and consumption function for this country. What happens to consumption when the propensity to save decreases to 0.1? Explain your answer and show this on the graph.
- 30. Given this model, what would be the change in equilibrium level of income were G to increase to 250? 31. Given this model, what would be the new equi8librium level of income were Investment spending to decline by 50?Which of the following would not increase consumption spending? O Decreased disposable income. Increased household wealth O A lower interest rate O Expectations of greater future incomen an effort to make sales projections, M/s K, B and A, the three B-school executives of Vengaboys Inc., were discussing about the national income and its growth in Ibiza. K had estimated a linear consumption function for Ibiza to be C = 100 + 0.6 Y, and investment to be I = 100 per ear. In Ibiza, there was no income tax and government spending was minimal (assume 0). Ibiza was a closed economy, and hence no exports and imports. (i)K immediately knew what the investment Multiplier was. Can you find out? (ii)What is the level of income in Ibiza? (iii)K estimated that with Government spending 100 on a new road to be constructed, the income levels are sure to go up. K quickly calculated the change in income and the new income level to be:
- 25 1 Calculate the equilibrium level of investment if you have the following equations: C=0.4Yd+20, national income is 1000, government expenditures is 200, tax is 50 Investment =300 O Investment-D350 O Investment3D400 O Investment3D450 O None of the above OThe table below provides Income and consumption Data in billions of dollars. Answer question below based on it.Disposable Consumption SavingsIncome100 80 --------200 150 --------- Using information from question 21, calculate the marginal propensity to consume for the economy? a. 0.8 b. 0.2 c. 0.3 d. 0.7. If the consumption function in an economy as follows C = 50 + 0.75Y and the following variables fixed at investment = 250 MD Government expenditure = 200MJD, Net exports = 200MJD, so the equilibrium income is equal Options are 3800,2800,1800,4800. Don't copy previous question becuase it is wrong?
