Consider the following table for a household's consumption expenditures and disposable income.
income:0, 100, 200, 300, 400, 500
consumpption: 100, 165, 230, 295, 360, 425
Saving: ?, ?, ?, ?, ?, ?
To the nearest dollar, compute desired saving at each level of disposable income.
To calculate the saving at each level of disposable income, we need to subtract the consumption expenditures from the disposable income.
income: 0, 100, 200, 300, 400, 500
consumption: 100, 165, 230, 295, 360, 425
saving: -100, -65, -30, 5, 40, 75
The saving is negative for the first 3 levels of income, indicating that the household is borrowing or using up savings to cover expenses. At an income of $400, the savings become positive, indicating that the household is saving money. The saving increases with each level of income.
b. The marginal propensity to save is
To calculate the marginal propensity to save, we need to find the change in saving divided by the change in disposable income.
Change in saving = Saving at a certain level of disposable income - Saving at the previous level of disposable income
Change in disposable income = Disposable income at a certain level - Disposable income at the previous level
Using this formula, we can calculate the marginal propensity to save at each level of disposable income.
Level 1:
Change in saving = -65 - (-100) = 35
Change in disposable income = 100 - 0 = 100
Marginal propensity to save = Change in saving / Change in disposable income = 35 / 100 = 0.35
Level 2:
Change in saving = -30 - (-65) = 35
Change in disposable income = 200 - 100 = 100
Marginal propensity to save = Change in saving / Change in disposable income = 35 / 100 = 0.35
Level 3:
Change in saving = 5 - (-30) = 35
Change in disposable income = 300 - 200 = 100
Marginal propensity to save = Change in saving / Change in disposable income = 35 / 100 = 0.35
Level 4:
Change in saving = 40 - 5 = 35
Change in disposable income = 400 - 300 = 100
Marginal propensity to save = Change in saving / Change in disposable income = 35 / 100 = 0.35
Level 5:
Change in saving = 75 - 40 = 35
Change in disposable income = 500 - 400 = 100
Marginal propensity to save = Change in saving / Change in disposable income = 35 / 100 = 0.35
The marginal propensity to save remains constant at 0.35 at each level of disposable income. This means that for every additional dollar of disposable income, the household increases its saving by 0.35 dollars.
c. The marginal propensity to save plus the marginal propensity to consume must equal
The marginal propensity to save plus the marginal propensity to consume must equal 1.
In this case, we have already determined the marginal propensity to save to be 0.35 (or 35%). To find the marginal propensity to consume, we can subtract the marginal propensity to save from 1.
Marginal propensity to consume = 1 - Marginal propensity to save
Marginal propensity to consume = 1 - 0.35
Marginal propensity to consume = 0.65 (or 65%)
Therefore, the marginal propensity to save plus the marginal propensity to consume equals 0.35 + 0.65 = 1.
To find the desired saving at each level of disposable income, you need to subtract the consumption expenditure from the disposable income.
Let's calculate the desired saving at each level of disposable income:
Income: 0
Consumption: 100
Saving: Income - Consumption = 0 - 100 = -100
Income: 100
Consumption: 165
Saving: Income - Consumption = 100 - 165 = -65
Income: 200
Consumption: 230
Saving: Income - Consumption = 200 - 230 = -30
Income: 300
Consumption: 295
Saving: Income - Consumption = 300 - 295 = 5
Income: 400
Consumption: 360
Saving: Income - Consumption = 400 - 360 = 40
Income: 500
Consumption: 425
Saving: Income - Consumption = 500 - 425 = 75
So, to the nearest dollar, the desired saving at each level of disposable income is as follows:
-100, -65, -30, 5, 40, 75.
To compute the desired savings at each level of disposable income, we will subtract the consumption expenditure from the income.
Given the table:
Income: 0, 100, 200, 300, 400, 500
Consumption: 100, 165, 230, 295, 360, 425
To calculate the desired savings at each level of disposable income, we need to subtract the consumption expenditure from the income:
Desired Savings = Income - Consumption
Let's calculate the desired savings for each level of disposable income:
For income = $0:
Desired Savings = 0 - 100 = -100
For income = $100:
Desired Savings = 100 - 165 = -65
For income = $200:
Desired Savings = 200 - 230 = -30
For income = $300:
Desired Savings = 300 - 295 = 5
For income = $400:
Desired Savings = 400 - 360 = 40
For income = $500:
Desired Savings = 500 - 425 = 75
So, the desired savings at each level of disposable income (to the nearest dollar) are:
-100, -65, -30, 5, 40, 75.