Question

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 Income (GDP = DI) Consumption Saving APC APS $480 488 1.017 -0.017 520 524 560 600 640 P 680 560 596 632 668 704 740 776 720 760 800 16 20 24 P What is the value of the marginal propensity to consume? Instructions: Round your answer to one decimal place. What is the value of the marginal propensity to save? b. What is the break-even level of income in the table? Instructions: Enter your answer as a whole number. Break-even level of income =

Answer 1

a. When GDP (Y) = 600, Consumption (C) = 596, Savings (S) = 4

APC = C / Y

APC = 596/600

APC = 0.993

APS = S / Y

APS = 4/600

APS = 0.007

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When GDP (Y) = 800, Consumption (C) = 776, Savings (S) = 24

APC = C / Y

APC = 776/800

APC = 0.97

APS = S / Y

APS = 24/800

APS = 0.03

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Marginal propensity to consume (MPC) = Change in Consumption / Change in disposable income

When DI = 480, C = 488

When DI = 520, C = 524

AC 524 488 36 0.9 40 MPC 520 480 AY

MPC = 0.9

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Marginal propensity to consume (MPS) = Change in savings / Change in disposable income

When DI = 480, S = -8

When DI = 520, S = -4

-4 (8)) -48 AS 4 - 0.1 40 MPS 520 480 AY 40

MPS = 0.1

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b. Break even level of income is when consumption equals income. (Savings will be zero)

when DI = C = 560; S = 0

Break even level of income = 560

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