Complete the following table assuming that marginal propensity to save for this
ID: 1135071 • Letter: C
Question
Complete the following table assuming that marginal propensity to save for this economy is 0.2.
Disposable income
Consumption
Saving
100
140
200
300
400
The slope of the save schedule is ________________________
The slope of the consumption schedule is ________________________
The breakeven level of income is: ____________________
Average propensity to save at the disposable income of $300 is: ___________________
Average propensity to save at the disposable income of $200 is: ___________________
Average propensity to consumption at the disposable income of $400 is: _____________
Disposable income
Consumption
Saving
100
140
200
300
400
Explanation / Answer
Formula Used.
C = C0 + c(Yd) . Here, C0 denotes Autonomous Consumption, Yd denotes Disposable Income, c = MPC and MPC = 1 - MPS = 0.8
=> C0 = 140 - 0.8*100 = 60
S = -C0 + s(Yd), Here s denotes MPS
Yd = C + S.
hence Using abbove formulas We have the following results
The slope of the save schedule is dS/dY = MPS = 0.2
The slope of the consumption schedule is dC/dY = MPC = 1 - MPS = 0.8
The breakeven level of income is: thet income at which Saving = 0. Hence We can see from above table that Breakeven level of Income is $300
Average Propensity to save = S/Y. Hence Average propensity to save at the disposable income of $300 is 0/300 = 0
Average Propensity to save = S/Y. Hence Average propensity to save at the disposable income of $200 is -20/200 = (-)0.1(This implies he is not saving)
Average Propensity to Consume = C/Y. Hence Average propensity to Consumeat the disposable income of $400 is 380/400 = 0.95
Disposable Income Consumption Saving 100 140 (-)40 200 220 (-)20 300 300 0 400 380 20