Question

The following table provides data for output (real GDP) and saving. a. Fill in the missing numbers (gray shaded cells) in the table. Instructions in the table, round your answers to 3 decimal places. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers. Level of Output and Consumption Saving 480 520 16 32 ŠI 18 II What is the value of the marginal propensity to consume? What is the value of the marginal propensity to b. What is the break-even level of income in th

Answer 1

a)

Level of Output and Income	Consumption	Saving	APC	APS
480	496	-16	1.033	-0.033
520	520	0	1	0
560	544	16	0.971	0.028
600	568	32	0.946	0.053
640	592	48	0.925	0.075
680	616	64	0.905	0.094
720	640	80	0.888	0.111
760	664	96	0.873	0.126
800	688	112	0.86	0.14

Consumption = Income- Savings.

Saving= Income – Consumption.

APC= C/I (Consumption/ Income)

APS= S/I (Saving/ income

Answer: Marginal Propensity to Consume is change in consumption divided by change in income. MPC=∆C/∆I.

∆C= 24, ∆I = 40, then MPC= 24/40=0.6

The value of MPC is 0.6

Marginal propensity of save(MPS) is the change in saving divided by change in income. ∆S/∆I.

∆S=16, ∆I= 40, then MPS= 16/40=0.4

b) The break-even point is the point where consumption is equal to income so that saving is zero. In the table the break-even level of income is 520.

Break- even level of income is 520

The consumption is greater than income at the income level 480. This situation in economics is known as Dissaving.

c) MPS increase as income changes.

APC decrease as income changes.

MPC decrease as income changes.

APS increase as income changes.