Economics:
10th Edition
ISBN: 9781285859460
Author: BOYES, William
Publisher: Cengage Learning
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Question
Chapter 9, Problem 6E
To determine
(a)
| Y | C | I | G | X |
| $ 500 | $500 | $10 | $20 | $60 |
| $600 | $590 | $10 | $20 | $40 |
| $700 | $680 | $10 | $20 | $20 |
| $800 | $770 | $10 | $20 | $0 |
| $900 | $860 | $10 | $20 | -$20 |
| $1000 | $950 | $10 | $20 | -$40 |
The value of MPC.
Expert Solution
Answer to Problem 6E
| Y | C | MPC |
| $500 | $500 | |
| $600 | $590 | 0.9 |
| $700 | $680 | 0.9 |
| $800 | $770 | 0.9 |
| $900 | $860 | 0.9 |
| $1000 | $950 | 0.9 |
Explanation of Solution
MPC =
Wherein, Change in Income =
| Y | C | MPC |
| $500 | $500 | |
| $600 | $590 | 0.9 |
| $700 | $680 | 0.9 |
| $800 | $770 | 0.9 |
| $900 | $860 | 0.9 |
| $1000 | $950 | 0.9 |
Economics Concept Introduction
MPC − The additional consumption resulting from an additional unit of income.
To determine
(b)
To write:
| Y | C | I | G | X |
| $ 500 | $500 | $10 | $20 | $60 |
| $600 | $590 | $10 | $20 | $40 |
| $700 | $680 | $10 | $20 | $20 |
| $800 | $770 | $10 | $20 | $0 |
| $900 | $860 | $10 | $20 | -$20 |
| $1000 | $950 | $10 | $20 | -$40 |
The value of MPS.
Expert Solution
Answer to Problem 6E
The value of MPS is 0.10.
Explanation of Solution
Since income can only be either consumed or saved, therefore it can be written as
Y = C+S
Differentiating both sides with respect to Y
1 =
Thus, MPS =
In this case,
MPS =
MPS = 0.1
Economics Concept Introduction
MPS − The additional savings arising out of an additional unit of income.
To determine
(c)
| Y | C | I | G | X |
| $ 500 | $500 | $10 | $20 | $60 |
| $600 | $590 | $10 | $20 | $40 |
| $700 | $680 | $10 | $20 | $20 |
| $800 | $770 | $10 | $20 | $0 |
| $900 | $860 | $10 | $20 | -$20 |
| $1000 | $950 | $10 | $20 | -$40 |
The value of MPI.
Expert Solution
Answer to Problem 6E
| Y | I |
| $ 500 | $10 |
| $600 | $10 |
| $700 | $10 |
| $800 | $10 |
| $900 | $10 |
| $1000 | $10 |
The MPI is zero.
Explanation of Solution
In this case, the investment is not changing with income level. It is fixed. Hence, the marginal propensity to invest is zero.
Economics Concept Introduction
MPI − The additional investment arising out of an additional unit of income.
To determine
(d)
| Y | C | I | G | X |
| $ 500 | $500 | $10 | $20 | $60 |
| $600 | $590 | $10 | $20 | $40 |
| $700 | $680 | $10 | $20 | $20 |
| $800 | $770 | $10 | $20 | $0 |
| $900 | $860 | $10 | $20 | -$20 |
| $1000 | $950 | $10 | $20 | -$40 |
The aggregate expenditure at each level of income.
Expert Solution
Answer to Problem 6E
| Y | C | I | G | X | AE |
| $ 500 | $500 | $10 | $20 | $60 | $590 |
| $600 | $590 | $10 | $20 | $40 | $660 |
| $700 | $680 | $10 | $20 | $20 | $730 |
| $800 | $770 | $10 | $20 | $0 | $800 |
| $900 | $860 | $10 | $20 | -$20 | $870 |
| $1000 | $950 | $10 | $20 | -$40 | $940 |
Explanation of Solution
Aggregate expenditure at each level of income is consumption expenditure plus investment expenditure plus government expenditure and net exports.
Economics Concept Introduction
Aggregate expenditure− The expenditure made by different sectors of the economy to goods and services and the net exports.
To determine
(e)
| Y | C | I | G | X |
| $ 500 | $500 | $10 | $20 | $60 |
| $600 | $590 | $10 | $20 | $40 |
| $700 | $680 | $10 | $20 | $20 |
| $800 | $770 | $10 | $20 | $0 |
| $900 | $860 | $10 | $20 | -$20 |
| $1000 | $950 | $10 | $20 | -$40 |
The aggregate expenditure graphs.
Expert Solution
Answer to Problem 6E
Explanation of Solution
Aggregate Expenditure graph will be sloping upwards. This is due to the increase in level of aggregate expenditure.
| Y | C | I | G | X | AE |
| $ 500 | $500 | $10 | $20 | $60 | $590 |
| $600 | $590 | $10 | $20 | $40 | $660 |
| $700 | $680 | $10 | $20 | $20 | $730 |
| $800 | $770 | $10 | $20 | $0 | $800 |
| $900 | $860 | $10 | $20 | -$20 | $870 |
| $1000 | $950 | $10 | $20 | -$40 | $940 |
Economics Concept Introduction
Aggregate expenditure− The expenditure made by different sectors of the economy to goods and services and the net exports.
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