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.