This question is from the material you learned in chapter 8. a) Please complete

Question

This question is from the material you learned in chapter 8.

a) Please complete the table I have provided in trillion dollars . The mps =0.2

DI (t)                  C (t)             S (t)

$0                             

2                   2                      

4              

6              

8              

10                       

12               

14                       

b) What is the dollar value of autonomous consumption?

c) What is the value of the mpc? Show.

d) What value shows equilibrium (cf crosses 45 degree line)?

e) Draw a consumption function diagram showing equilibrium. Type equilibrium numbers.

f) Draw a saving function showing equilibrium. Type equil. Number

g) Find and show the value of the multiplier.

h) Now, assume $1t of autonomous investment spending occurs. What is the new equilibrium value? EXPLAIN.

Explanation / Answer

A)

B) The dollar value of autonomous consumption is $ 0.4 trillion.

C) The value of MPC =0.8

Because we know that , MPS=1-MPC

0.2 = 1- MPC

MPC= 1-0.2

MPC= 0.8

D) The DI income of $10 trillion is showing equilibrium because at this DI is equal to consumption.

G) Value of multiplier = 1/1-MPC = 1/MPS

Value of multiplier =1/0.2 = 5

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DI C S 2 2 .4 4 3.6 .8 6 5.2 1.2 8 6.8 1.6 10 8.4 2 12 10 2.4 14 11.6 2.8

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