Macroeconomics
Macroeconomics
21st Edition
ISBN: 9781259915673
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
Question
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Chapter 10, Problem 3P

Subpart (a):

To determine

MPC.

Subpart (a):

Expert Solution
Check Mark

Explanation of Solution

The slope of the linear equation is the MPC; here, it is equal to 0.8. Thus, MPC is 0.8.

Economics Concept Introduction

Concept Introduction:

Marginal propensity to consume: Marginal propensity to consume refers to the sensitivity of change in the consumption level due to changes occurred in the income level.

Marginal propensity to save (MPS): Marginal propensity to save refers to the sensitivity of change in the saving level due to changes occurred in the income level.

Subpart (b):

To determine

MPS.

Subpart (b):

Expert Solution
Check Mark

Explanation of Solution

The MPS is evaluated as follows:

Marginal propensity to save=1-Slope of the linear equation                                          =1-0.8                                          =0.2

Thus, MPS is 0.2.

Economics Concept Introduction

Concept Introduction:

Marginal propensity to consume: Marginal propensity to consume refers to the sensitivity of change in the consumption level due to changes occurred in the income level.

Marginal propensity to save (MPS): Marginal propensity to save refers to the sensitivity of change in the saving level due to changes occurred in the income level.

Subpart (c):

To determine

Consumption.

Subpart (c):

Expert Solution
Check Mark

Explanation of Solution

Consumption can be calculated as follows:

Level of consumption=($40+Slope of linear equation)×Income                                 =($40+0.8)×$400                                 =$360

Total consumption is $360.

Economics Concept Introduction

Concept Introduction:

Marginal propensity to consume: Marginal propensity to consume refers to the sensitivity of change in the consumption level due to changes occurred in the income level.

Marginal propensity to save (MPS): Marginal propensity to save refers to the sensitivity of change in the saving level due to changes occurred in the income level.

Subpart (d):

To determine

APC.

Subpart (d):

Expert Solution
Check Mark

Explanation of Solution

The average propensity to consume (APC) is evaluated as follows:

Average propensity to consume=ConsumptionIncome                                                =$360$400                                                =0.9

Average propensity to consume is 0.9.

Economics Concept Introduction

Concept Introduction:

Marginal propensity to consume: Marginal propensity to consume refers to the sensitivity of change in the consumption level due to changes occurred in the income level.

Marginal propensity to save (MPS): Marginal propensity to save refers to the sensitivity of change in the saving level due to changes occurred in the income level.

Subpart (e):

To determine

Level of saving.

Subpart (e):

Expert Solution
Check Mark

Explanation of Solution

The level of saving can be evaluated as follows:

Level of saving=Income-Consumption                        =$400-$360                        =$40

Total saving is $40.

Economics Concept Introduction

Concept Introduction:

Marginal propensity to consume: Marginal propensity to consume refers to the sensitivity of change in the consumption level due to changes occurred in the income level.

Marginal propensity to save (MPS): Marginal propensity to save refers to the sensitivity of change in the saving level due to changes occurred in the income level.

Subpart (f):

To determine

APS.

Subpart (f):

Expert Solution
Check Mark

Explanation of Solution

The average propensity to saving (APS) is evaluated as follows:

Average propensity to save=SavingIncome                                         =$40$400                                         =0.1

Average propensity to save is 0.1.

Economics Concept Introduction

Concept Introduction:

Marginal propensity to consume: Marginal propensity to consume refers to the sensitivity of change in the consumption level due to changes occurred in the income level.

Marginal propensity to save (MPS): Marginal propensity to save refers to the sensitivity of change in the saving level due to changes occurred in the income level.

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