ECON102 Lecture Notes - Lecture 7: Google Images, Canadian Dollar, Real Interest Rate
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The following table is a consumption schedule. Assume taxes and transfer payments are zero and that all saving is personal saving.
(GDP = DI) |
C |
S |
APC |
APS |
$1,500 |
$1,540 |
$_____ |
1.027 |
–0.027 |
$1,600 |
$1,620 |
_____ |
1.013 |
–0.013 |
$1,700 |
$1,700 |
_____ |
_____ |
_____ |
$1,800 |
$1,780 |
_____ |
0.989 |
0.011 |
$1,900 |
$1,860 |
_____ |
0.979 |
0.021 |
$2,000 |
$1,940 |
_____ |
_____ |
_____ |
$2,100 |
$2,020 |
_____ |
0.962 |
0.038 |
$2,200 |
$2,100 |
_____ |
_____ |
_____ |
Compute saving at each of the eight levels of disposable income and the missing average propensities to consume and to save.
1. The break-even level of disposable income is $________.
2. As disposable income rises, the marginal propensity to consume remains constant. Between each two GDPs the MPC can be found by dividing $________ by $________, and is equal to _______.
3. The marginal propensity to save also remains constant when the GDP rises. Between each two GDPs the MPS is equal to $________ divided by $________, or to _______.
1. The multiplier helps explain
A. why a decrease in taxes causes real Gross Domestic Product (GDP) to fall by more than the amount of the decrease in taxes. |
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B. why a fall in investment cause real Gross Domestic Product (GDP) to rise by more than the amount of the decrease in investment. |
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C. why a rise in government expenditures causes real Gross Domestic Product (GDP) to rise by more than the amount of the increase in government spending. |
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D. why an increase in disposable income causes real Gross Domestic Product (GDP) to rise by less than the amount of the increase in disposable income.
2. If the marginal propensity to save (MPS) increases, the multiplier
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