Let\'s assume that in the model of national economy household consumption i ment

Question

Let's assume that in the model of national economy household consumption i ment is ig 200, but government expenses are G- 250, while the sum of taxes collected by the government T- 150. Taking into account that di a) Equilibrium level of income Y b) Calculate the value of Marginal propensity to consume and value of Marginal propensity to save; c) Private consumption at macroeconomic equilibrium; d) Develop equation of saving and calculate amount of saving at the point of equilibrium level of income. . Taking into account that disposable income D1-Y-T, calculate:

Explanation / Answer

C = 300+ 0.9 DI , I = 200 , G = 250 , T=150 and DI= (Y-T).

Aggregate demand (AD) = C + I + G

Now, put the values then we get,

AD = 300 + 0.9(Y - 150) + 200 + 250

(a) To find Equilibrium level of income Y, equate AD with Y.

Y = AD

Y = 300 + 0.9Y - 135 + 200 + 250

Y - 0.9Y = 750 -135

0.1Y = 615

Y = 6150 [Equilibrium level of income]

(b) Value of marginal propensity to consume is the change in consumption due to one unit change income. This is equal to 0.9. Value of marginal propensity to save = (1 - marginal propensity to consume) = (1 - 0.9) = 0.1.

(c) Private consumption at macroeconomic equilibrium , C= 300 + 0.9(6150- 150)

C = 300 + 0.9(6000) = 300 + 5400

C = 5700

(d) Saving equation , S = Y- C

Saving at the point of equilibrium is S = Y -C = 6150 - 5700 = 450

Related Questions

Navigate

• Browse (All)
• Browse L
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.