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 30 Solutions
Economics (Irwin Economics)
- CF 1 2 3 4. 5 Disposable income (trillions of 2005 dollars) In the above figure, at a disposable income level of $2 trillion, saving equals Select one: O a. $4 trillion. O b. zero. O c. consumption expenditures. O d. disposable income. 6. 3 DT Processing of...pdf 2 Introduction to..pdf odf here to search Consumption expenditure (trillions of 2005 dollars) 5, IIarrow_forwardOn a graph of a consumption function, what is the significance of the 45-degree line? O a. It connects all points where desired consumption equals actual disposable income. O b. It connects all points where desired consumption equals desired expenditure. O c. Desired consumption is zero at all points along the 45-degree line. O d. It connects all points where desired consumption equals desired saving. O e. It shows the slope of the average consumption function, against which we measure other consumpfion functionsarrow_forwardAssume in a simple economy that the level of saving is -$800 when aggregate output equals zero and that the marginal propensity to save is 0.25. Derive the saving function and the consumption function. O A. S= -800 - 0.25Y andC= 800 - 0.75Y O B. S= - 800 +0.25Y and C = 800 + 0.75Y OC. S= -800 - 0.025Y and C = 800 - 0.075Y O D. S= - 800- 0.25Y and C= 800 + 0,75Y Consider the graph of these functions. The consumption function has a y-intercept of and is The saving function has a y-intercept of and is The consumption curve crosses the 45-degree line at a level of output of (Enter your response as an integer) Click to select your answer(s). lenovo V560 EGOarrow_forward
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- 9. Suppose Amal calculates her permanent income by adaptive expectations . Year 2020 Amal's permanent income was 38,000 , and year 2021 actual income is 41,000 . Assume that , long - run marginal to consume is 0.90 and short - run marginal propensity to consume is 0.28 . What is her consumption expenditure year 2021 ? O 36.774 O 35,040 O 40.226 O 33.454 O 34.740 O None of the above is correctarrow_forwardUse the table below to answer the following question. Income (Dollars) 20,000 24,000 O 0.75 What is the marginal propensity to consume? O 0.875 O 0.90 Consumption (Dollars) O 1.33 18,000 21,500arrow_forwardAssume a closed economy, that taxes are fixed, and the marginal propensity to consume is equal to 0.66. What is the government spending multiplier? O 1.51 3.33 3.03 33.3arrow_forward
- An increase in interest rates shifts the Investment Demand curve up and increases Business Investment Expenditures. O True O False Households' autonomous savings is exactly the same as autonomous consumption. O True O False An increase in households' wealth will increase the marginal propensity to consume. O True O False Private-Sector Savings equal Consumption Expenditures at the Break-Even Disposable Income. True O False In National Income Accounting, an increase in unplanned inventory increases actual business investment expenditures (la). O True O Falsearrow_forwardQuèstion 5 $60 $40 -- $20 $50 100 150 200 Disposable Income(Y) -20 Refer to the diagram. The average propensity to consume: O A. is greater than 1 at all levels of disposable income above $100. O B. cannot be determined from the information given. O C, is equal to the average propensity to save. O D. is greater than 1 at all levels of disposable income below $100. Saving (S)arrow_forwardSuppose that the level of GDP increased by $100 billion in an economy where the marginal propensity to consume is 0.5. The initial change in spending must have been: O $5 billion O $100 billion O $50 billion O $500 billionarrow_forward
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