Gross Domestic Product : It is defined as the money value of all finished goods and services that are produced by the normal resident and nonresident of the country inside the boundary of a country usually for one year. The formula to calculate change in GDP is, Here, is autonomous spending. MPC is marginal propensity to consume. Marginal Propensity to Consume ( MPC ): It is defined as the change which occurs in total consumption level due to change in income. The formula to calculate MPC is, Here, is change in income. is change in consumption level. MPC is marginal propensity to consume. Marginal Propensity to Save ( MPS ):. It is defined as the variation in the saving when the income of an individual varies. The formula to calculate MPS is: Here, MPC is marginal propensity to consume. MPS is marginal propensity to save. Consumption Level ( C ): It is one of the largest components of GDP .The individual consumption Depends on the disposable income. Consumption Function: It shows how the change in disposable income of an individual changes the consumption level. The formula to calculate consumption function is, Here, C is consumption level. is autonomous consumption. is disposable income. MPC is marginal propensity to consume.

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Chapter 11, Problem 4P

To determine

Concept Introduction:

Gross Domestic Product: It is defined as the money value of all finished goods and services that are produced by the normal resident and nonresident of the country inside the boundary of a country usually for one year.

The formula to calculate change in GDP is,

Here,

is autonomous spending.

MPC is marginal propensity to consume.

Marginal Propensity to Consume ( MPC ): It is defined as the change which occurs in total consumption level due to change in income.

The formula to calculate MPC is,

Here,

is change in income.

is change in consumption level.

MPC is marginal propensity to consume.

Marginal Propensity to Save ( MPS ):. It is defined as the variation in the saving when the income of an individual varies.

The formula to calculate MPS is:

Here,

MPC is marginal propensity to consume.

MPS is marginal propensity to save.

Consumption Level ( C ): It is one of the largest components of GDP .The individual consumption Depends on the disposable income.

Consumption Function: It shows how the change in disposable income of an individual changes the consumption level.

The formula to calculate consumption function is,

Here,

C is consumption level.

is autonomous consumption.

is disposable income.

MPC is marginal propensity to consume.

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Active Learning 4: Computing GDP Cookies 2021 (base year) 2022 2023 P Q P Q P Q $1 900 $2 1,000 $3 1,250 200 $1,200 210 Smartphones $900 185 $1,000 Use the above data to solve these problems: A. Compute nominal GDP in 2021. B. Compute real GDP in 2022. C. Compute the GDP deflator in 2023. Mankiw, Principles of Macroeconomics, 10th Edition. 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 34 =4

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