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Question 1 of 6

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

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? $

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.
3

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 is the marginal propensity to consume (MPC)?

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.
3

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

How much is the marginal propensity to save (MPS)?

MPS = 1 – MPC. It is the fraction of the total that is not consumed. Here, MPS = 1 – 0.75 = 0.25.
3

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

Y C S
0 600 -600
400 900 -500
800 1200
1200 1500
1600 1800
2000 2100
2400 2400
2800 2700
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.

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
1200 1500 -300
1600 1800 -200
2000 2100 -100
2400 2400 0
2800 2700 100
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.

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
1200 1500 -300 1.25
1600 1800 -200 1.13
2000 2100 -100 1.05
2400 2400 0 1.00
2800 2700 100 0.96
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.