Question

HW Score: 48.49 % , 14.55 of 30 pts Text Problem 12-2c Question Help The following table depicts a hypolthetical economy in which the marginal propensity to save is constant at all levels of real GDP, investment spending is autonomous, and there is no govemment. 12- Real GDP Consumption $1,000 11- Saving $-1000 Investment OS 2,000 10- $1,000 1,000 1,000 2,500 4,000 5,500 7,000 8.500 -500 9 4,000 0 8- 6,000 500 1,000 74 8,000 1,000 1,500 1,000 1,000 10,000 6- This economy's marginal propensity to save is 0.25 and its marginal propensity to consume is 0.75 4- 3- 1) Using the line drawing tool, draw the consumption function Use the values of $0, and $10,000 for Real GDP to locate the endpoints of this line and label it 'C 2) Using the line drawing tool, add the investment function to oblain C+ Properly label this line 9/1) 10 1112 Real GOP per Year (S thousands) Carefuly follow the instructions above, and only draw the required objects 2) 1) Planned Real C and 1(5 thousands)

Answer 1

When real GDP is $0, consumption is $1,000.

When real GDP is $10,000, consumption is $8,500.

So, Y-intercept of consumption function will be at $1,000 and would extend up to $8,500.

Following table shows the C+I schedule -

Real GDP	Consumption	Investment	C+I
0	1,000	1,000	2,000
2,000	2,500	1,000	3,500
4,000	4,000	1,000	5,000
6,000	5,500	1,000	6,500
8,000	7,000	1,000	8,000
10,000	8,500	1,000	9,500

When real GDP is $0, C+I is $2,000.

When real GDP is $10,000, C+I is $9,500.

So, Y-intercept of C+I function will be at $2,000 and would extend up to $9,500.

Following is the required graph -

thousands and Het COPY