Macroeconomics
13th Edition
ISBN: 9781337617390
Author: Roger A. Arnold
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 10, Problem 8QP
To determine
The relation between the MPC and the savings.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
In the simple Keynesian consumption function C = 84 +0.83*Y^d, what is the marginal propensity to consume (MPC) equal to?
Explain the Keynesian, saving-consumption relationship, and interpret consumption and saving functions on a single graph.
The consumption and saving functions in the Keynesian model
Suppose we observe that a person's disposable income (DI) is 50,000 in 2019 and 63,000 in 2020. Suppose we
observe that this person's consumption (C) is 47,000 in 2019 and 58,700 in 2020. Assume that this person's
consumption obeys the Keynesian consumption function, so that C = A + MPC*DI. Finally, assume that A and MPC are
unchanged between 2019 and 2020.
(a) Calculate the values of A and MPC for this consumer, and graph the consumption function. (Hint: subtract the C
function in 2019 from the C function of 2020).
(b) In general, saving is given by the formula S = DI - C. Calculate this person's saving in 2019 and 2020. Assuming that
this person's wealth (net worth) on January 1, 2019 was 80,000, what is their wealth on January 1, 2020? on January 1,
2021?
(c) In general, if consumption is given by the function C = A + MPC*DI, then saving will obey the saving function S = -A
+ (1 - MPC)*DI. Plot the saving function…
Chapter 10 Solutions
Macroeconomics
Ch. 10.1 - Prob. 1STCh. 10.1 - Prob. 2STCh. 10.1 - Prob. 3STCh. 10.2 - Prob. 1STCh. 10.2 - Prob. 2STCh. 10.2 - Prob. 3STCh. 10.3 - Prob. 1STCh. 10.3 - Prob. 2STCh. 10.3 - Prob. 3STCh. 10.4 - Prob. 1ST
Ch. 10.4 - Prob. 2STCh. 10 - Prob. 1QPCh. 10 - Prob. 2QPCh. 10 - Prob. 3QPCh. 10 - Prob. 4QPCh. 10 - Prob. 5QPCh. 10 - Prob. 6QPCh. 10 - Prob. 7QPCh. 10 - Prob. 8QPCh. 10 - Prob. 9QPCh. 10 - Prob. 10QPCh. 10 - Prob. 11QPCh. 10 - Prob. 12QPCh. 10 - Prob. 13QPCh. 10 - Prob. 14QPCh. 10 - Prob. 15QPCh. 10 - Prob. 16QPCh. 10 - Prob. 17QPCh. 10 - Prob. 18QPCh. 10 - Prob. 19QPCh. 10 - Prob. 20QPCh. 10 - Explain how to derive a total expenditures (TE)...Ch. 10 - Prob. 22QPCh. 10 - Prob. 23QPCh. 10 - Prob. 24QPCh. 10 - Prob. 25QPCh. 10 - Prob. 1WNGCh. 10 - Prob. 2WNGCh. 10 - Prob. 3WNGCh. 10 - Prob. 4WNGCh. 10 - Prob. 5WNGCh. 10 - Prob. 6WNGCh. 10 - Prob. 7WNGCh. 10 - Prob. 8WNG
Knowledge Booster
Similar questions
- Explain what the consumption function shows and describe what is held constant along the consumption function . Response Must be 200 words in lengtharrow_forwardConsider an economy described by the following:Autonomous consumption ( a ) = 100Autonomous Investment = 100Marginal propensity to consume = 0.75 2. What is the consumption function for this economy?arrow_forwardIn the Keynesian-cross analysis, if the consumption function is given by C=100+0.6(Y-T),and planned investment is 100,G is 100, and T is 100,then the equilibrium Y is: Select one: a. 400 b. 350 c. 750 d. 600arrow_forward
- What happens in the simple Keynesian model if households expect lower income in the future and decide to save more today? Adjust the graph and answer the question. Assume that investment varies directly with aggregate income. Aggregate expenditure (in billions of dollars) 10 9 8 7 5 4 3 2 1 0 0 1 2 3 4 5 6 7 Aggregate income (in billions of dollars) 8 9 AE = AI C+1 10arrow_forwardWhat happens to savings when the consumption function lies above the 45° line. (hint: Keynesian model). Select one from the following options. negative positive decreasing increasingarrow_forwardWhat is the consumption function? What is the marginal propensity to consume? What does an upward-sloping consumption function mean?arrow_forward
- What is the shape of the keynesian consumption function with diagram?arrow_forwardIf the consumption function is given by C = 6 + 31 determine the 3 4 marginal propensity to consume and the marginal propensity to save when 1 = 25.arrow_forwardQ.1.7 In the Keynesian macroeconomic model, the equation for the savings function is given as: S = -420 + 1/4Y. Based on this information, which of the following statements is correct? (1) The marginal propensity to consume is 1/4; (2) The marginal propensity to save is -420;arrow_forward
- Which of the following statements about the Keynesian framework are accurate? a)Keynes posited a linear Consumption function C=Ca + mpcYd, where C is total desired consumption spending, Ca is consumption spending independent of income and Yd is disposable income and mpc is marginal propensity to consume b) In the C=Ca +mpcYd the Ca is the vertical axis intercept parameter, and mpc is the slope parameter. c) Keynes also posited that Investment spending was a function of expectations and the interest rate. d) In the Keynesian investment function the firm's estimated profitability of potential investment projects were determined by expectations of future sales and costs. e) Businesses would invest in those projects whose estimated profitability was greater than the market rate of interest. f) If the firms don't have the cash, they will borrow funds and earn the difference between the rate of return on the project and the lower market rate of interest. If they have more cash than needed…arrow_forwardIf the consumption function is C = 80 + 0.6Y, then the marginal propensity to consume equals: 0.6. 0.4. 0.5. -0.4.arrow_forwardIf the Keynesian consumption function is C = 100 +0.75Y4 and there is no investment then, when disposable income is 500, what is the average propensity to consume? Round your answer to 2 decimal places e.g. 2.22arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
Exploring EconomicsEconomicsISBN:9781544336329Author:Robert L. SextonPublisher:SAGE Publications, Inc
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning
Exploring Economics
Economics
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:SAGE Publications, Inc