1. Refer to the accompanying consumption schedule. The marginal propensity to co
ID: 1153398 • Letter: 1
Question
1.
Refer to the accompanying consumption schedule. The marginal propensity to consume is
0.80.
0.20.
0.75.
0.60.
2. Complete the accompanying table and answer the question on the basis of the resulting data. All figures are in billions of dollars. For the open economy, the equilibrium GDP and the multiplier are
Domestic Output (GDP=DI)
Aggregate Expenditures, Closed Economy
Exports
Imports
Net Exports
Aggregate Expenditures, Open Economy
$200
$230
$30
$20
$--------
$--------
250
270
30
20
--------
--------
300
310
30
20
--------
--------
350
350
30
20
--------
--------
400
390
30
20
--------
--------
450
430
30
20
--------
--------
500
470
30
20
--------
--------
Disposable Income Consumption $10,000 $12,000 18,000 18,000 26,000 24,000 34,000 30,000 42,000 36,000 50,000 42,000Explanation / Answer
1. Option 3. 0.75
Explanation: Marginal propensity to consume = change in consumption/change in income.
From the table, we can see that for every $8,000 increase in disposable income, consumption increases by $6,000.
So, the marginal propensity to consume = change in consumption/change in income = $6,000/$8,000 = 0.75.
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