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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 鈭�Cand saving 鈭�Sis a result of a change in disposable income role="math" localid="1651729112353" 鈭�D

role="math" localid="1651729119593" 鈬�螖顿=螖C+螖S

Marginal propensity to consume is,

role="math" localid="1651729338497" 鈬�螖C螖顿=4800060000=0.8

Marginal propensity to save is,

role="math" localid="1651729359511" 鈬�螖厂螖顿=1200060000=0.2

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Most popular questions from this chapter

At an initial point on the aggregate demand curve, the price level is 125 , and real GDP is \(18 trillion. When the price level falls to a value of120 , total autonomous expenditures increase by \)250 billion. The marginal propensity to consume is 0.75. What is the level of real GDP at the new point on the aggregate demand curve?

Consider the table below when answering the following questions. For this economy, the marginal propensity to consume is constant at all levels of real GDP, and investment spending is autonomous. Equilibrium real GDPis equal to \(8,000. There is no government.


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

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. Does theC+Icurve cross the45-degree reference line in the upper graph at the same level of real GDPwhere the saving and investment curves cross in the lower graph, at the equilibrium real GDPof \)8,000? (If not, redraw your graphs.)

d. What is the average propensity to save at equilibrium real GDP?

e. If autonomous consumption were to rise by $100, what would happen to equilibrium realGDP?

According to Kegnesian theory, what should have determined the actual amount of the response of real consumptioa expenditures to the small increase in real GDP?

At various times in the past-the early 1980 s, early 1990 s, early 2000 s, and late 2000 s-business profit expectations plummeted, and firms cut back on their investment spending. The ratio of total investment spending to companies' aggregate profit flows decreased markedly. In each instance, real GDP declined, and the U.S. economy fell into recession. At the end of the recession intervals of the early 1980 s, early1990 s, and early 2000 s, business profit expectations improved. Firms responded by boosting their investment spending, and both real GDP and the ratio of investment expenditures to firms' profits recovered fully. At the conclusion of the late-2000s recession, however, this ratio failed to return to its previous level. By the time you have completed this chapter, you will understand why the result during this current decade has been a sluggish improvement in real GDP and, hence, an unusually slow economic recovery.

Evaluate why autonomous changes in total planned expenditures have a multiplier effect on equilibrium real GDP

The multiplier in a country is equal to5, and households pay no taxes. At the current equilibrium real GDP of \(14trillion, total real consumption spending by households is \)12trillion. What is real autonomous consumption in this country?
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