Question

Summer 6WK1 2019 Huddleston t Exam 3 Microeconomics - ECON 2301 2Aa. PLEASE MARK YOUR ANSWERS BY CIRCLING THE APPROPRIATE LETTER IT HMA NAME: 3. The following table gives data for a private closed economy. The MPS is: Possible Levels of Domestic Output and Income (GDP- DI) Consumption $320 $320 330 327 334 340 341 348 350 360 355 370 362 380 7/10 b. 3/10 a c. 2/5 d. 3/5 4. Using this same data, if Ig is $12 billion, equilibrium GDP will be: Possible Levels of Domestic Output and Income (GDP DI) $320 330 Consumption $320 327 334 340 341 350 348 360 355 370 362 380 a. $380 b. $370 c. $360 d. $350

Answer 1

3. MPC = change in Consumption / change in DI

We can see that, if DI increases from $320 to $330, then Consumption increases from $320 to $327. That means, change in Consumption = $7 and change in DI = $10. This happens at all levels of DI. That is, with every $10 increase in DI, Consumption increases by $7.

So, MPC = $7/$10 = 0.7

Therefore, MPS = 1 - MPC = 1 - 0.7 = 0.3

Answer: option B

4. At equilibrium, GDP = C + Ig

If Ig is $12 billions, then equilibrium GDP must be $360 billions, because at that level, C + Ig = $(348 + 12) billions = $360 billions.

Answer: option C