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Consumption Problem Set

The document summarizes calculations for marginal propensity to consume (MPC), marginal propensity to save (MPS), average propensity to save (APS), and average propensity to consume (APC) based on income and consumption data. It also provides the equilibrium income calculation for an economy where consumption is C= 400 + 0.6(Y-T), investment is I= 120, government spending is initially G= 100, and taxes are T= 100. It then calculates the new equilibrium income if government spending increases to 240.

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Sneha Giji Saji
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51 views

Consumption Problem Set

The document summarizes calculations for marginal propensity to consume (MPC), marginal propensity to save (MPS), average propensity to save (APS), and average propensity to consume (APC) based on income and consumption data. It also provides the equilibrium income calculation for an economy where consumption is C= 400 + 0.6(Y-T), investment is I= 120, government spending is initially G= 100, and taxes are T= 100. It then calculates the new equilibrium income if government spending increases to 240.

Uploaded by

Sneha Giji Saji
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Problem Set 2

By- Ashis Kumar Pradhan


Calculate Marginal Propensity to Consume (MPC) and Marginal Propensity to Save (MPS) for the
following problem

Income Consumption MPC MPS

2000 1900 -  - 

2200 2060    

2400 2210    

2600 2350    
Answer

Income Consumption MPC MPS

2000 1900 -  - 

2200 2060 0.8  0.2 

2400 2210  0.75  0.25

2600 2350 0.7   0.3


Calculate Savings, Consumption, Average
propensity to save (APS) and Average Propensity
to Consume (APC)
Consumption

Marginal Average
Propensity to Propensity to Average propensity
Income Consume Savings save (APS) to consume (APC)
75
0 0.5 -75  -  -
 
100 0.5      
 
140 0.5      
 
200 0.5      
 
250 0.5      
Answer
Consumption
Marginal Average
Propensity to Propensity to Average propensity
Income Consume Savings save (APS) to consume (APC)
75
0 0.5 -75  -  -
125
100 0.5  -25 -0.25  1.25 
145
140 0.5  -5  -0.03 1.03
175
200 0.5  25 0.12   0.88
200
250 0.5 50   0.2  0.8
For an Economy
• C= 400 + 0.6 (Y-T)
• I= 120
• G= 100
• T= 100

• Find Out:
• (a) Equilibrium Income
• (b) If the government expenditure increased to 240 what is the
new equilibrium income?
Answer
• (a) Y= C + I + G + (X-M)
• Y= 400 + 0.6 (Y-100) + 120 + 100
• Y= 1400

• (B) ΔG= 140


• ΔY/ΔG= 1/1-MPC
• ΔY= (1/1-MPC) ΔG
• ΔY= 2.5 * 140 = 350

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