Question

Real GDP, consumption, and the marginal propensity to consume (MPC) for five hypothetical countries are shown in the table below.

a. Enter the current level of saving in the appropriate column in the table.

b. Now suppose that GDP increases by $20 billion in each of the five countries. What would be the new level level of saving in each country? Show your answers in the table below.

	Country Real GDP (Billions) Consumption (Billions) MPC Current Level of Saving (Billions) New Level of Saving (Billions) A $40 $40 0.95 $0 B 50 32 0.75 C 70 56 0.8 D 100 120 0.9 E 180 160 0.95

Answer 1

(a)

Current saving = Real GDP = Consumption

Country	Real GDP	Consumption	MPC	Current Saving	New Saving
A	40	40	0.95	0	1
B	50	32	0.75	18	23
C	70	56	0.80	14	18
D	100	120	0.90	-20	-18
E	180	160	0.95	20	21

(b)

New saving = Current saving + (1 - MPC) x Increase in GDP = Current saving + (1 - MPC) x $20 billion, computed as above.

(Excel screenshot)

E 653- Saving - Microsoft Excel HomeInsertPage LayoutFormulas Data Review View novaPDF Cut Σ AutoSum Copy ,-쇼. . % , 'al conditional asombat styles. B 1- ** İ Merge & Center. Insert Delete Format Sort & Find & Format Painter 2 Clear FilterSelect Editing Alignment Cells A6 1 Country Real GDP Consumption MPC 0.95 0.75 0.8 0.9 0.95 Current Saving 40 50 70 100 180 40 32 56 120 160 B2-C2 -B3-C3 -B4-C4 -B5-C5 -B6-C6 New Saving =E2+((1-D2)*20) E3+1-D3)*20) E4+1-D4)*20) 51-D5)*20) E6+((1-D6)*20) 4 9 10 12 13 14 4 ト 커 Sheet1/ Sheet2· Sheet3 M 18096 E).h@ о..al ENG 22:26 US 28-03-2019