1.Gary\'s autonomous consumption is $12,000 and his disposable income is $140,00

Question

1.Gary's autonomous consumption is $12,000 and his disposable income is $140,000. If Gary consumes $145,000 worth of goods, what is his Marginal Propensity to Save?

Select one:

a. .05

b. .10

c. .15

d. .20

e. .25

2. Based on the figure shown (that shows Real GDP over time), what can be said about 1993?

Select one:

a. Unemployment was relatively high, but the economy began to recover

b. Unemployment was relatively high and the economy was going deeper into a recession

c. Unemployment was relatively low and the economy was in rapid expansion

d. Unemployment was relatively low, but the economy was slowing down

e. Unemployment equaled the natural rate of unemployment

3.Which one of these individuals lives under absolute scarcity?

Select one:

a. Maria lives in a simple apartment in Russia. She has food & heating, but wants a car

b. Colette lives in an apartment in Paris. She feels like she has everything that she needs

c. Aadi lives in the slumps on Bangalore, India. He lacks a basic shelter or access to clean water

d. Chen is a wealthy businessman who lives in Shanghai, China. Despite his wealth he always want to make more money

e. Lori lives in Myrtle Beach. She has a big house, but she cannot afford to buy the boat that she wants

4. Which of the following topics is most likely to be covered in Microeconomics?

Select one:

a. How to regulate pollution from a paper mill

b. The exchange rate between the U.S. dollar and the British pound

c. How the Fed influences interest rates in the economy

d. How countries grow and develop

e. The composition of the U.S. labor force

Explanation / Answer

Question 1

Autonomous consumption implies consumption when income is $0.

So, when income is zero, consumption is $12,000.

At income of $140,000, consumption is $145,000.

Thus, with increase in income from $0 to $140,000, consumption increases from $12,000 to $145,000.

Change in consumption = $145,000 - $12,000 = $133,000

Change in income = $140,000 - $0 = $140,000

Calculate the MPC -

MPC = Change in consumption/Change in income = $133,000/$140,000 = 0.95

Calculate the MPS -

MPS = 1 - MPC = 1 - 0.95 = 0.05

The marginal propensity to save is 0.05.

The correct answer is the option (a).

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