(a) Suppose real GDP per person falls during a devastating recession, which in turn causes consumption to fall by 5%. Suppose there are no taxes in this economy. Would giving everyone 5% more income during the recession cause consumption to go up 5%? (b) An individual gets a salary increase from £50,000 to £75,000 per year. The individual saved £10,000 a year before the salary increase and £20,000 a year after the salary increase. Assume there are no taxes, the individual does not borrow, and the individual does not withdraw their savings. Calculate the individual's marginal propensity to consume.

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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(a) Suppose real GDP per person falls during a devastating recession, which in
turn causes consumption to fall by 5%. Suppose there are no taxes in this
economy. Would giving everyone 5% more income during the recession cause
consumption to go up 5%?
(b)
An individual gets a salary increase from £50,000 to £75,000 per year. The
individual saved £10,000 a year before the salary increase and £20,000 a year
after the salary increase. Assume there are no taxes, the individual does not
borrow, and the individual does not withdraw their savings. Calculate the
individual's marginal propensity to consume.
Transcribed Image Text:(a) Suppose real GDP per person falls during a devastating recession, which in turn causes consumption to fall by 5%. Suppose there are no taxes in this economy. Would giving everyone 5% more income during the recession cause consumption to go up 5%? (b) An individual gets a salary increase from £50,000 to £75,000 per year. The individual saved £10,000 a year before the salary increase and £20,000 a year after the salary increase. Assume there are no taxes, the individual does not borrow, and the individual does not withdraw their savings. Calculate the individual's marginal propensity to consume.
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