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Chapter 12: Q.13 (page 278)

Consider movements from points F to K in both panels of Figure 12-1. Use the resulting changes in planned real consumption and saving corresponding to the change in real disposable income to calculate the marginal propensities to consume and to save.

Short Answer

Expert verified

marginal propensities to consume is0.8

marginal propensities to save is0.2

Step by step solution

01

introduction

Marginal propensity to consume is the proportion of progress in utilization and change in discretionary cash flow. It alludes to the small portion of extra pay that is spent on utilization.

Marginal propensity to save is the small portion of extra cash that is saved. It is given by the proportion of progress in reserve funds to change in pay.

02

explanation

A change in consumption ∆Cand saving ∆Sis a result of a change in disposable income role="math" localid="1651729112353" ∆D

role="math" localid="1651729119593" ⇒ΔD=ΔC+ΔS

Marginal propensity to consume is,

role="math" localid="1651729338497" ⇒ΔCΔD=4800060000=0.8

Marginal propensity to save is,

role="math" localid="1651729359511" ⇒ΔSΔD=1200060000=0.2

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Most popular questions from this chapter

Consider Table 12-2. What is the average propensity to consume at the equilibrium level of real GDP? What is the average propensity to save?

At an initial point on the aggregate demand carve, the price level is100, and real GDP is\(18trillion. After the price level rises to110 , however, there is an upward movement along the aggregate demand curve, and real GDP declines toSl4 trillion. If total planned spending declined by \)200 billion in response to the increase in the price level, what is the marginal propensity to consume in this economy?

Consider the table below when answering the following questions. For this hypothetical economy, the marginal propensity to save is constant at all levels of real GDP, and investment spending is autonomous. There is no government.

a. Complete the table. What is the marginal propensity to save? What is the marginal propensity to consume?

b. Draw a graph of the consumption function. Then add the investment function to obtain C+I.

c. Under the graph of C+I, draw another graph showing the saving and investment curves. Note that the C+Icurve crosses the 45-degree reference line in the upper graph at the same level of realGDPwhere the saving and investment curves cross in the lower graph. (If not, redraw your graphs.) What is this level of real GDP?

d. What is the numerical value of the multiplier?

e. What is equilibrium real GDPwithout investment? What is the multiplier effect from the inclusion of investment?

f. What is the average propensity to consume at equilibrium real GDP?

g. If autonomous investment declines from \(400to \)200, what happens to equilibrium real GDP?

Take a look at Figure 12-5. If current real GDP for this nation's economy is $13 trillion per year, what are the values of planned real investment and actual real investment? What is the amount of the unplanned inventory change, and why does this fact imply that real GDP must change? To what new level will real GDP adjust?

Assume that the multiplier in a country is equal to 4and that autonomous real consumption spending is\(1trillion. If current real GDP is\)18trillion, what is the current value of real consumption spending?
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