Question

Refer to the information provided in Table 8.1 below to answer the questions that follow.

Table 8.1



1) Refer to Table 8.1. Society's MPC is

Aggregate Income ($ billion 0 Aggregate Consumption (Sbillion 80 50 125 100 170 150 215 200 260

a) 0.80.

b) 0.05.

c) 0.90.

d) 0.95.

2) Refer to Table 8.1. Society's MPS is

a) 0.05.

b) 0.10.

c) 0.95.

d) 0.20.

3) Refer to Table 8.1. At an aggregate income level of $100, aggregate saving would be

a) -$70.

b) $70.

c) $50.

d) -$30.

Refer to the information provided in Figure 8.3 below to answer the questions that follow.


Figure 8.3


4) Refer to Figure 8.3. If aggregate income is $1,000 billion, then in this society aggregate saving is ________ billion.

a) $240

b) $320

c) $550

d) $300

5) Refer to Figure 8.3. [60 + 0.7Y] is this society's

a) consumption function.

b) MPC.

c) MPS.

d) saving function.

Answer 1

Q1

Answer

MPC=change in consumption /change in income

= (125-80)/ (50-0)

=0.9

The MPC is 0.9

Option c

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Q2

Answer

Option b

MPS=1-MPC=1-0.9=0.1

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Q3

Answer

Saving =income -consumption

=100-170=-$70

Option a

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Q4

Answer

MPC= (130-60)/ (100-0)

=0.7=b

a=autonomous consumption=60=y-axis intercept of the consumption function which is the dark black line

Consumption function is the form of

C=a+bY

C=60+0.7Y

Y=1000

C=60+0.7*1000=760

S=Y-C=1000-760=$240

The saving is $240

Option a

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Q5

Answer

Option a

MPC= (130-60)/ (100-0)

=0.7=b

a=autonomous consumption=60=y-axis intercept of the consumption function which is the dark black line

The consumption function is the form of

C=a+bY

C=60+0.7Y