Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Question
Chapter 24, Problem 1.6P
To determine
Disposable income, consumption, saving, planned aggregate expenditure (AE) and the unplanned inventory change.
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Consider an economy that is characterized by the following equations:
C= 400 + 0.5 Yd
I = 700 - 4000i + 0.1Y
G= 200
T= 200
(MP)d = 0.75Y - 7500;
(M/P)S = 600
What is the equilibrium investment (I)?
Consider an economy that is characterized by the following equations:
C= 400 + 0.5 Yd
I = 700 - 4000i + 0.1y
G= 200
T= 200
(M/P)d
- = 0.75Y - 7500€
(MP)== 600
What is the equilibrium consumption (C)?
Determine the change in the equilibrium level of consumption (find ΔC) following a decrease in government spending from 400 to 300 (ΔG = -$100).
A: positive 400$
B: negative 300
c: negative 400
D: positive 300
Chapter 24 Solutions
Principles of Economics (12th Edition)
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- Imagine this economy has a 10% tax on income. The following are exogenous (not directly affected by income): G = 11 I = 4 X = M = 0 The consumption function is: C = k + cY, where k = 3, c = 0.8 Now we have to take that tax into account. Here is a way to think about it: Look at the consumption function. It says if you give me one more dollar of income I will spend 80 cents of it (mpc = 0.8). BUT I can only spend what I receive. I can only spend my after-tax or disposable income. With a 10% tax, I don't receive Y I receive 90% of Y or Y*(1-t) where t = 10% or 0.1. Let's define disposable income as Yd where Yd = Y*(1-t). Therefore we restate our consumption function as C = k + cYd Now we have, in this case, C = k + cYd or C = 3 + 0.8Yd or C = 3 + 0.8*(Y*[1-0.1]) or C = 3 + 0.72Y. Now what is the equilibrium GDP? Give the answer to ONE decimal place.arrow_forwardThe following are exogenous (not directly affected by income): G = 9 I = 14 X = M = 0 The consumption function is: C = k + cY, where k = 8, c = 0.6 at the point where this economy is in equilibrium what is the total level of withdrawals? Give the number to ONE decimal place.arrow_forwardb) With an example, elaborate the consumption functionarrow_forward
- The consumption demand function merely states that as income goes up, households consume all their increased incomearrow_forwardIn an economy C= 300 + 0.6Y and I= 400 C is denoted to be as the Consumption Y is the Income and I is the Investment. Equilibrium level of Income.?arrow_forwardConsider the hypothetical country of Kejimkujik. Suppose that national income in Kejimkujik is $300 billion, households pay $100 billion in taxes, household consumption is equal to $160 billion, and the marginal propensity to consume (MPC) is 0.6. On the following graph, use the blue line (circle symbol) to plot the economy's consumption function. Consumption Function050100150200250300350400450500500450400350300250200150100500CONSUMPTION (Billions of dollars)DISPOSABLE INCOME (Billions of dollars) Suppose now that Kejimkujik’s national income increases to $330 billion. Assuming the amount paid in taxes is fixed at $100 billion and that MPC = 0.6, what is the new amount of household consumption? $148 billion $219.4 billion $220.6 billion $178 billionarrow_forward
- True or False? In the long-run general equilibrium, MPK = MPL.arrow_forwardConsider the following economy C=1000+0.4(Y-T) 1%3500 T=400 G=300 What is the consumption of equilibrium?arrow_forwardFind the equilibrium level of income and consumption if the consumption function is C = 0.2 Y + 20 and planned investment I= 22.arrow_forward
- From the graph above, complete the aggregate consumption function from the information provided. C = ___ + ___Yarrow_forwardConsider the non-linear aggregate consumption function: C = 0.05Y²+ Y + 80 (Where, C = aggregate consumption and Y = aggregate income). 21 d) Find the elasticity of the consumption function and show that it equals the MPC/APC.arrow_forwardPlease help solvearrow_forward
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