# Macro Help

posted by .

Calculating Marginal Propensity to Save and Marginal Propensity to Consume

Consider the following table. 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
(\$)-------(\$)-------------(\$)-----------(\$)

2,000----2,200-----------------------------
4,000----4,000-----------------------------
6,000----------------------------------------------------------
8,000----------------------------------------------------------
10,000----------------------------------------------------------
12,000----------------------------------------------------------

You need to:
1. Complete the table.

2. Calculate the marginal propensity to save.

3. Calculate the marginal propensity to consume.

4. Draw a graph of the consumption function using the Grapher. Then, add the investment function to obtain C+I.

5. Draw another graph showing the saving and investment curves under the C+I graph. What is the level of real GDP?

6. Calculate the numerical value of the multiplier.

7. Calculate the equilibrium real GDP without investment. What is the multiplier effect from the inclusion of investment?

8. Calculate the average propensity to consume at equilibrium real GDP.

9. If equilibrium real GDP is \$8,000 when investment is \$400, explain what happens to equilibrium real GDP if autonomous investment declines to \$200.

(2) Calculating Average Propensity to Save and Average Propensity to Consume

A nation's consumption function (expressed in millions of inflation-adjusted dollars) is
C=\$800 +0.80Y. There are no taxes in this nation.

1. What is the value of autonomous saving?
2. What is the value of the multiplier?

• Macro Help -

Take a shot. what do you think.
Hint, S=I, where I is composed of intended or autonomous investment Ia and unintended investment Ib (e.g., change in inventories). Hint 2. Multiplier is 1/MPS

• Macro Help -

I don't know missing something

## Similar Questions

1. ### Macroeconomics

Suppose the marginal propensity to consume is 0.75. What does this mean?
2. ### macroeconomice

Will marginal propensity to spend (d) will be low if, propensity to import (m) is low, marginal propensity to consume (b) is low and tax rate is (t) is low?
3. ### macroeconomice

Will marginal propensity to spend (d) will be low if, propensity to import (m) is low, marginal propensity to consume (b) is low and tax rate is (t) is low?
4. ### Econ

Need help on this question, I tried the ones i know. a The consumption function is C = 1.5 + 0.75(Y-T). What is the marginal propensity to consume, MPC?

Given the increase in government expenditures and the marginal propensity to consume, how would you find the change in equilibrium GDP?
6. ### math

Suppose C(x) measures an economy's personal consumption expenditure and x the personal income, both in billions of dollars. Then the following function measures the economy's savings corresponding to an income of x billion dollars. …
7. ### Math

Suppose C(x) measures an economy's personal consumption expenditure and x the personal income, both in billions of dollars. Then the following function measures the economy's savings corresponding to an income of x billion dollars. …
8. ### Macro Consumption Question

(Simple Spending Multiplier) For each of the following values for the MPC (marginal propensity to consume), determine the size of the simple spending multiplier and the total change in real GDP demanded following a \$10 billion decrease …
9. ### Economics

Explain how each will impact the size of autonomous expenditure multiplier, other variables constant. (a) Decrease in marginal propensity to consume (b) Decrease in marginal propensity to import