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Calculating Marginal Propensity




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.;Now answer the following questions;1. What is the value of autonomous saving?;2. What is the value of the multiplier?


Paper#31092 | Written in 18-Jul-2015

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