Question

Use the following to answer questions 9-10 120 100 40 20 40 0 80 100 120 Income (billions 9. The above figure suggests that A) consumption would be $60 billion even if income were zero B) saving is zero at the $120 billion income level C) as income increases, consumption decreases as a peroentage of income D) as income increases, consumption decreases absolutely 10. Refer to the above figure. If the relevant saving schedule were constructed A) saving would be mintus $20 billion at the zero level of income. B) aggregate saving would be $60 at the S60 billion level of income C) İts slope would be 1/2 D) İt would slope downward and to the tight Use the following to answer questions 1-3 Answer the nexct question(s) on the basis of the following data for a hypothetical economy income Saving S-10 50 100 150 200 10 20 30 1. Refer to the above data The marginal propensity to consume is A) 80 B) 75 C) 20. D) 25 2 Refer to the above data. At the $100 level of income, the average propensity to save is A) 10. B) 20 C) 25. D) 90 3. Refer to the above data If plotted on a graph the slope of the saving schedule would be A) 80 B) 10 C) 20. D) 15

Answer 1

9) C). See that when income rises, consumption also rises but by a lesser value so new consumption is a declining % of new income. Saving is 0 at Y = C = 60 and Saving is positive when income is 120

10) A) When Y = C = 60, Saving is 0. Slope is 0.33 because saving is increased by 20 when income is increased by 60 so MPS = 20/60. Now When Y is 0, C is 20 so saving is -20.

1) MPC = 1 - MPS. Here MPS = 20 - 10 / 150 - 100 = 10/50 = 0.2. Hence MPC = 0.8. (A)

2) When Y is 100, S is 10 so APS = 10/100 = 0.1. (A)

3) Slope is MPS = 0.2. (C)