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Problem (1)

Problem (1). C = 20 + 0.8 Y Consumption Function I = 100 Investment Find the following: 1. Marginal Propensity to Consume (MPC): MPC = 0.8 2. Marginal Propensity to Save (MPS) : MPC + MPS =1 MPS = 1 – MPC = 1 – 0.8 = 0.2.

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Problem (1)

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  1. Problem (1) • C = 20 + 0.8 Y Consumption Function • I = 100 Investment Find the following: 1. Marginal Propensity to Consume (MPC): MPC = 0.8 2. Marginal Propensity to Save (MPS): MPC + MPS =1 MPS = 1 – MPC = 1 – 0.8 = 0.2

  2. C = 20 + 0.8 Y Consumption Function I = 100 Investment 3.The Equilibrium Domestic income (Y): Y = C + I Y = 20 + 0.8 Y + 100 Y – 0.8 Y = 120 (1- 0.8) Y = 120 0.2 Y = 120 Y = 120/0.2 = 600 4. Autonomous Consumption ( ): = 20 5. Induced Consumption (MPC)Y): = 0.8 * 600 = 480

  3. C = 20 + 0.8 Y Consumption Function I = 100 Investment 6. Consumption at Equilibrium (C): C = Autonomous Consumption + Induced Consumption C = 20 + 480 = 500 7. Saving at Equilibrium (S): S = Y – C = 600 – 500 = 100 S = I

  4. S AND i S • 8- show the equilibrium Y graphically? n 100 I 0 600 Y

  5. Problem (2) C = 10 + 0.7 Y I = 50 Find the Following: 1. Marginal Propensity to Consume (MPC) MPC = 0.7 2. Marginal Propensity to Save (MPS) MPC = 1 – MPC = 1 - 0.7 = 0.3 3. Autonomous Consumption ( ) = 10 4. Y at equilibrium Y = C + I Y = 10 + 0.7 Y + 50 Y – 0.7 Y = 10 + 50 (1 – 0.7 ) Y = 60 0.3 Y = 60 Y = 60 / 0.3 = 200

  6. C = 10 + 0.7 Y I = 50 5. Induced Consumption = MPC * Y = 0.7 * 200 = 140 6. Total Consumption = Autonomous Consumption + Induced C. = 10 + 140 = 150 7. Total Saving S = Y- C S = 200 – 150 = 50 S= I = 50

  7. 8- show the equilibrium Y graphically? C S • 8- show the equilibrium Y graphically? n 50 I 0 Y 200

  8. Problem (3) C = 50 + 0.6 Y Find Saving Function Solution S = - 50 + 0.4 Y Problem (4) S = - 50 + 0.2 Y Find Consumption Function Solution C = 50 + 0.8 Y ________________________

  9. Problem (5)

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