MACRO DR DAS ASSIGNMENT 1 FALL 2017 (Protected View) Word ew Tell me what you wa

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MACRO DR DAS ASSIGNMENT 1 FALL 2017 (Protected View) Word ew Tell me what you want to do to edit it's safer to stay in Protected View. Enable Editing Answer questions 4a and b based on the following data for a hypothetical economy Disposable Income SO 50 100 150 Savi .$1 10 20 4. a. Refer to the above data. The marginal propensity to consume is: (3points) b. Refer to the above data. At the $100 level of income, the average propensity to save is: (2points) Income 0 80 100 200 Consumption 200 260 275 350 Table 3. 5. Using the table above:

Explanation / Answer

1)Marginal propensity to Consume is defined as the ratio of change in the consumption to change in the disposable income.

Here, the initial income is $0 and the new income is $200, so the change in income is:

200-0= $200

And, the initial consumption is $200, the new consumption is $350, so the change in consumption is:

350-200= $150

Thus, Marginal propensity to consume= 150/200= 0.75

2) Average propensity to save is the ratio of savings to disposable income. So at disposable income of $100, the saving is $10, hence the average propensity to save is = 10/100 =0.1

3. Marginal propensity to consume between income levels of $80 and $100 is:

At income level of $80, the consumption is- $260

At income level of $100, the consumption is- $ 275

Change in Consumption = 275-260= $15

Change in Income= 100-80= $20

So, MPC = Change in Consumption/ Change in disposable income

= 15/20= 0.75

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