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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.

Real GDP Consumption Saving Investment

$2000 2200 ____ 400

4000 4000 ______ _____

6000 ______ ______ _____

8000 ______ _______ ______

10,000 _______ _______ ______

12,000 _______ _______ _______

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

PLEASE SHOW WORK

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Chika Ilonah
Chika IlonahLv10
28 Sep 2019
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Related questions

12-2. 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 + I curve crosses the 45-degree reference line in the upper graph at the same level of real GDP where 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 GDP without 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 $400 to $200, what happens to equilibrium real GDP?

1. Suppose the multiplier in a given economy is 2.5. If government spending increases by 10, how much will GDP increase by?

10 * 2.5 = 25

2. Again, suppose the multiplier is 2.5. If investment spending falls by 4, what will be the change in GDP?

- Invetment spending falls by 4 --> - 4

2.5 * - 4 = - 10

3. Again, suppose that the multiplier for a given economy is 2.5. The authorities believe that GDP is currently below potential, and would like it to increase by 5. How much should they raise government spending to bring this about?

2. 5 * ___ = 5 ---> 5/2 = 2

Government spending should raise to 2

4. Suppose the marginal propensity to consume in an economy is equal to 0.75. What is the marginal propensity to save?

mpc = 0.75

marginal propensity to save = 1 - 0.75 = 0.25

5. Again, suppose the marginal propensity to consume is 0.75. If GDP increases by 20, what is the change in consumption?

mpc = 0.75

GDP (Y) = 20

C = 0 + 0.75 * 20 = 15

6. Suppose the marginal propensity to consume in an economy is equal to 0.75. If there were no taxes and no foreign trade, what would the multiplier be?

mpc = 0.75

1 - 0.75 = 0.25

0.25 รขย€ย”> 1/4

1 / 1/4 = 4/1 = 4

multiplier = 4

* I would like to know if my answers are correct and if I used the correct formulas to find the answers. Thank you.

Assume the following values of an economy.

Planned Investment (Ip) = $20

Autonomous Consumption (C ) = $30

Marginal Propensity to consume (MPC) = .9

a. What is the equilibrium income?

b. What is the value of saving at equilibrium?

c. Does the saving and Investment Identity hold true at equilibrium income OR GDP?

2. In addition to the values given in question (1) above, assume the government increases its spending by $30 without raising taxes. The government can do this by borrowing from the private sector.

a. Based on this information calculate the new level of equilibrium income.

b. Calculate the total value of consumption at equilibrium.

c. Calculate the total value of saving at equilibrium.

3. In addition to questions in (1 & 2) above, assume the government decides to raise autonomous taxes by $30 to balance its budget.

a. What is the new value of equilibrium income?

b. What is the value of the autonomous tax multiplier?

c. What is the value of autonomous spending multiplier?

4. In addition to the value in questions (1, 2 & 3), assume the following values.

Autonomous export (Xa) = $30

Autonomous import (Ma) = $10

Marginal propensity to import = 0.1

a. What is the new value of equilibrium income?

b. What is the value of total consumption of domestically produced good at equilibrium?

c. What is the value of the trade surplus or deficit at equilibrium?

d. What is the value of the marginal propensity to consume domestically produced goods?

e. What is the value of capital inflow or outflow

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