Chapter 1. Chapter 8b (19b)

Step 1

Solved Problems
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You must read each slide, and complete any questions on the slide, in sequence.

Question

Suppose that the following individual spends a certain percentage of his income (Y) and saves the rest.

Y C S APC APS
0 600 -600
400 900 -500 2.25 -1.25
800 1200
1200 1500
1600 1800
2000 2100
2400 2400
2800 2700
Table

Based on this table, how much consumption occurs when income is $0? $Y4X9gzy3nmw=

The amount of consumption that occurs when income is $0 is the intercept of the consumption function, C = a + MPC × Y. Here, that value is in the first row of the table.
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Step 2

Question

Y C S APC APS
0 600 -600
400 900 -500 2.25 -1.25
800 1200
1200 1500
1600 1800
2000 2100
2400 2400
2800 2700
Table
EW6YFnUT5rtXj4wCN4NHQAtXmdb6I6XgkljI68axbU6+tw4qsfdqH1hiag4tTFABZQFDa6nZj+DumfZvL8MgItpXaL9DhMnEx8lowWhodMNwd/09
MPC is the change in consumption divided by the change in income. Here, income consistently rises by $400, while in every row Consumption rises by $300. MPC = $300 / $400 = 0.75.
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Step 3

Question

Y C S APC APS
0 600 -600
400 900 -500 2.25 -1.25
800 1200
1200 1500
1600 1800
2000 2100
2400 2400
2800 2700
Table
ig0F8MwLua0Y8vfrFfbDhL8gTHjpsTTbMfNLUsowhfm9uFD3n93/C6Z+JEq7pQghNuLR/h6ZQTt5+AVM
MPS = 1 – MPC. It is the fraction of the total that is not consumed. Here, MPS = 1 – 0.75 = 0.25.
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Step 4

Question

Fill in the column for total savings (S) at each income level.

Y C S
0 600 -600
400 900 -500
800 1200 euqFOgEvNUc=
1200 1500 XGHcD6zQVKI=
1600 1800 MOdw+m7i2ys=
2000 2100 t1wYyIwc5BI=
2400 2400 1Wh3cvJ2xF4=
2800 2700 b0g0iQ1whKk=
Table
3
Savings equals income minus consumption, or Y – C. You can subtract the two columns. For example, in the first row, Y = 0 and C = $600. S = 0 – $600 = -$600.

Step 5

Question

Fill in the column for the average propensity to consume (APC) at each income level. Round answers to two decimal places.

Y C S APC
0 600 -600
400 900 -500 2.25
800 1200 -400 tlwwQe+7W4M=
1200 1500 -300 y8Sz/PJSTJs=
1600 1800 -200 Af8a/bMTV+8=
2000 2100 -100 IY7EyitSF6E=
2400 2400 0 AsAmbyYNzho=
2800 2700 100 ibVUafRd2Ks=
Table
3
APC equals total consumption divided by total income. You can divide the two columns. In the second row, C = $900 and Y = $400. APC = $900 / $400 = 2.25.

Step 6

Question

Fill in the column for the average propensity to save (APS) at each income level. Round answers to two decimal places.

Y C S APC APS
0 600 -600
400 900 -500 2.25 -1.25
800 1200 -400 1.50 +NWOE0vfBaVRiOwo
1200 1500 -300 1.25 Q65l1I4pY8OJ//8u
1600 1800 -200 1.13 5c+9eZBdjs3c9q+w
2000 2100 -100 1.05 +KEsKMhKvImecSPW
2400 2400 0 1.00 OZ/0q4VvT6o=
2800 2700 100 0.96 Tya7GbusOh4=
Table
3
APS = total saving divided by total income. You can divide the two columns. For example, in the second row, S = -$500 and Y = $400. APS = -$500 / $400 = -1.25.