Assume that C = 100 + 0.9Y D where C is consumption and Y D is disposable income

Question

Assume that C = 100 + 0.9YD where C is consumption and YD is disposable income.

>If YD = $1000B, what is the average propensity to consume, the average propensity to save, the marginal propensity to consume and the marginal propensity to save?

>If planned investment falls by 500, how much would aggregate demand change?

>How much would the government need to increase spending to eliminate an aggregate demand shortfall of $1000B? How much would it need to cut taxes to achieve the same result? Explain why your two answers are different.

Explanation / Answer

APC=C/DI

=100+0.9YD/1000B

=100+0.9×1000B/1000B

=1000B/1000B

=1

APS=YD-TAXES

=1000B

MPC=Change in consumption/change in income

=0/0

MPS=0

b)If planned investment fall national income will also fall.there will be a parallel inward shift of demand curve.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.