the space provided. Show y 4. The table given below reports the consumption expe
ID: 1165070 • Letter: T
Question
the space provided. Show y 4. The table given below reports the consumption expenditure of a nation at different levels of disposable income. Table 1 Disposable Income Consumption (C) $10,000 $15,000 $25,000 $30,000 $35,000 $40,000 $50,000 S 4,500 $12,000 S15,750 $23,250 $27,000 S30,750 S34,500 $42,000 4a. Refer to Table 1. At an income level of $30,000, calculate the value of the average propensity to consume (APC). 4b. Refer to Table 1. At an income level of is $22,000, calculate the level of consumption. 4c. Refer to Table 1. At an income level of $22,000, calculate the value of the average propensity to save (APS).Explanation / Answer
4a. At an income of 30000, consumption is 27000. Hence, APC = C/Y = 27000/30000 = 0.9
4b. Consumption function is C = c + bY where c is 4500 (autonomous consumption) and b = (12000 – 4500)/10000 = 0.75. Hence C = 4500 + 0.75Y. When income is 22000, C = 4500 + 0.75*22000 = 21000
4c. When income is 22000, consumption is 21000 so saving is 1000. This implies APS = 1000/22000 = 0.045
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