Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 23, Problem 5.4P
To determine
Effect of increase in savings on MPC, MPS, multiplier and the output.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
According to ihe Bureau of Ecnnomic Analysis, during the
recession of 2007–2009, household saving as a fraction of
disposable personal income increased from a low of just over
I percent in ihe first quarter of 2008 to 5 percent in the second
quarter of 2009. All else equal, what impact would this change
in saving have on the MPC, MPS, and multiplier? How would
ihis change affect equilibrium output when planned investment
changes?
If autonomous consumption is 400 and the multiplier is 4, the saving function is
equal to *
S= 400 +4Yd
S= -400 + 0.75Yd
S= 400 +0.1Yd
S= -400+0.25Y.
Suppose disposable income increases from $7 trillion to $8 trillion. At the same
time, consumption expenditure increases from $6.8 trillion to
Thus the
MPC must equal
$7.8 trillion; 0.60
$7.6 trillion; 0.80
$7.4 trillion; 0.40
$8 trillion; 1.00
Fill in the aggregate saving column in the following
table. Use the data in the table to calculate the con-
sumption function and the saving function, and plot
these functions as well as the 45-degree line on a graph.
What are the values for the MPC and the MPS?
Aggregate
Income, Y
Aggregate
Consumption, C
Aggregate
Saving, S
$ 0
$200
100
250
200
300
300
350
400
400
500
450
600
500
Chapter 23 Solutions
Principles of Economics (12th Edition)
Knowledge Booster
Similar questions
- Drawn is the consumption function for Jim. Rachel is economically identical to Jim except in two important aspects. First, while Rachel has the same income as Jim, Rachel has lower expected future income. Second, Rachel has a higher marginal propensity to save than does Jim. Change the consumption function of Jim to reflect a feasible consumption function of Rachel and then answer the following question (scroll down to see the second part). Household Consumer Spending Consumption function Household Current Disposable Incomearrow_forwardPrecisely how do the APC and the MPC differ? Why must the sum of the MPC and the MPS equal 1? What are the basic determinants of the consumption and saving schedules? Of your personal level of consumption?arrow_forwardPlease help solvearrow_forward
- The graph represents consumption (C) as a function of disposable income (DI). Assume the consumption function is linear. What is the value of the marginal propensity to consume (MPC)? Round the value of the MPC to two decimal places. MPC = Consumption $1050 900 750 600 450 300 150 0 $150 300 450 600 C = DI C 750 900 1050 Disposable incomearrow_forwardConsider the following information on aggregate income, consumption expenditure, and planned investment for a country:arrow_forwardThe graph represents consumption (C) as a function of Consumption disposable income (DI). Assume the consumption function is linear. What is the value of the marginal propensity to $1050 consume (MPC)? C = DI 900 Round the value of the MPC to two decimal places. 750 600 MPC = 450 300 150 $150 300 450 600 750 900 1050 Disposable incomearrow_forward
- Very briefly summarize the relationships shown by (a) the consumption schedule, (b) the saving schedule, (c) the investment demand curve, and (d) the multiplier effect. Which of these relationships are direct (positive) relationships and which are inverse (negative) relationships? Why are consumption and saving in the United States greater today than they were a decade ago?arrow_forwardPlease write down whether the following statements are true or false, and explain your answer very briefly A)If actual investment is greater than planned investment, inventories increase more than planned. B)The marginal propensity to consume is the change in consumption expenditure divided by the percentage change in income. C)Gross domestic product (GDP) is the value of all goods and services produced in an economy over a particular time period. D)Monetary policy refers to taxation and spending policies implemented by government. E)In a simple Keynesian model (with lump-sum taxes and a MPC of 0.8), a tax cut of 20 billion TL will have less of an impact on GDP than an increase in government spending of 10 billion TL. D)When you take 1000 TL from your savings account and deposit it in your checking account, M2 decreases. F)An open market purchase of government securities (such as Treasury Bills) by the Central Bank will decrease the money supply and raise the interest rate.…arrow_forwardwhat is the correct answer?arrow_forward
- Suppose that the linear equation for consumption in a hypothetical economy is C = 40 + .8Y. Also suppose that income (Y ) is $400. Determine (a) the marginal propensity to consume, (b) the marginal propensity to save, (c) the level of consumption, (d ) the average propensity to consume, (e) the level of saving, and ( f ) the average propensity to save.arrow_forwardFind the equilibrium level of GDP (income or V) demanded in an economy in which investment (1) is always $300, net exports (X-IM) are always - 550, government expenditures (G) and taxes (T) are each equal to $400, and the consumption function is described by the following algebraic equation: C = 150 + 0.75Dl DI is disposable income. How much saving (5) is there at the equilibrium level of income. Hint: (1) Dl = Y (national income or GDP) minus taxes (Y-T) (2) Income (Y) not consumed (C) must be saved (S). This means that S = Y-C. (3) to answer this you have to set Y=AE or Y=C+1+G (X-IM), and solve for Y. Then you have to solve for S.arrow_forwardQuestion 11 You may complete the following table assuming initial increase in investment = $10000 and MPC= 0.2. Investment spending Change in income Change in consumption Change in saving Initial increase $10000 2nd round 3rd round All other rounds Total Amount of change in consumption in 'All other rounds' isarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Exploring EconomicsEconomicsISBN:9781544336329Author:Robert L. SextonPublisher:SAGE Publications, Inc
Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
Exploring Economics
Economics
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:SAGE Publications, Inc
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning