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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

Consider the following diagram, which depicts a country with no government expenditure, taxes, or net exports. Answer the following questions and explain your responses using the information in the diagram.

a. What is the marginal saving propensity?

a. What is the current level of projected investment spending over the next few years?

c. What is the current period's equilibrium level of real GDP?

d. What is the current period's saving equilibrium level?

e. What will the change in equilibrium real GDP be if planned investment spending for the current period is increased by$25billion? What will the new real GDP equilibrium level be if all other variables, including the price level, remain constant?

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?

Consider the current equilibrium real GDP level of \( 18.0 trillion displayed in Table 12-2. Based on your answer to Problem 4, if real government spending were to decrease by \)1.0 trillion, what would be the resulting change in real GDP? What would be the new equilibrium level of real GDP? Verify that at the new level of government spending, this new equilibrium real GDP equals C+I+G+NX.

Explain the key determinants of consumption and saving in the Keynesian model

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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