Question

4. Given the following income, spending and savings data, please answer the questions below: Disposable Income (DI) Consumption (C) Savings (S) $ 0 $ 1000 $ 5000 $ 5000 $10000 $15000 $20000 $ 9000 $13000 $17000 a. Solve for savings at each level of disposable income (DI). b. Solve for the marginal propensity to consume (MPC) and the marginal propensity to save (MPS) between each disposable income level. d. Solve for the average propensity to consumer (APC) and the average propensity to save (APS) at each level of disposable income. (d) State the break-even level of disposable income. (e. State the value for autonomous consumption. Graph the consumption line. 8. Graph the savings line. 11 . wannabis

Answer 1

(a) Savings (S) = DI - C

DI	C	S	APC	APS
0	1,000	-1000
5,000	5,000	0	1	0
10,000	9,000	1000	0.9	0.1
15,000	13,000	2000	0.87	0.13
20,000	17,000	3000	0.85	0.15

(b)

MPC = Change in C / Change in DI = (5,000 - 1,000) / (5,000 - 0) = 4,000/5,000 = 0.8

MPS = 1 - MPC = 1 - 0.8 = 0.2

(c)

APC = C / DI

APS = S / DI, computed above.

(d)

At breakeven DI,

DI = C

This holds true when DI = C = 5,000

(e)

When DI = 0, C = 4,000, which is autonomous consumption.

(f)

18,000 Consumption 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 5000 0 10000 15000 20000 DI

(g)

3000 Saving 2500 2000 1500 n1000 500 20000 5000 10000 15000 -500 DI -1000