Question

In an economy with no government sector, investment is 1,000, net exports are 200, and the consumption function is: Income Consumption 3,000 2,100 3,500 2,500 4,000 2,900 4,500 3,300 5,000 3,700 5,500 4,100 6.1. Calculate the expenditure schedule, and find the equilibrium level of GDP. 6.2. What are savings at this equilibrium GDP? 6.3. What is the marginal propensity to consume? 6.4. What is the multiplier?

Answer 1

Answer:

income of 4,500

4,500 = 3,300 + 1,000 + 200

savings: 1,200

MPC:  0.80

Multiplier: 1.25

Explanation:

open economy:

GDP = C + I + G + (X-M)

If G = 0 (no goverment)

GDP = C + I + (X-M)

GDP = C + 1,000 + 200

GDP = C + 1,300

From the given table, we need to find a difference of 1,300 between consumption and income

This is: 4,500 income and 3,300 consumption

Savings = Income - Consumption

Savings = 4,500 - 3,300 = 1,200

marginal propensity to consume:

ΔC / ΔY = we look into the table the amount consumption increase at each level and the same for the increase in income:

400/500 =0.8

The economy consume 80% of he income

Multiplier:

1/0.8 = 1.25