Question

12. Given the following macroeconomic data:

- at DI = 0, C = 350
- at DI = 100, C= 430

This hypothetical economy's Consumption Function is mathematically expressed as:

C = -350 + 0.2 (DI)

cannot be determined based on information provided

C = 350 + 0.8 (DI)

C = 350 + 0.2 (DI)

C = -350 + 0.8 (DI)

13. Refer to the macroeconomic data in question #12 above. Compute the amount of Savings in which DI is at $300.

cannot be computed based on information provided

$290

$350

-$350

-$290

14. Refer to macroeconomic data in #12 above. The level of Disposable Income in which Savings is zero is:

$2,250

$1,750

$1,500

cannot be computed based on information provided

$2,000

15. Using the macroeconomic data in #12 above. The level of DI in which savings is zero is:

$1,825

$1,775

$1,800

$1700

none of the answers given is correct

Answer 1

12.

The given information is

at DI = 0, C = 350
- at DI = 100, C= 430

MPC=change in consumption / change in disposable income

=(430-350)/(100-0)

=80/100

=0.8

MPS=1-MPC

=1-0.8

=0.2

The consumption function equation mathematically

C=c+MPC(DI)

C=350+0.8(DI)

Hence option third is the correct answer.

13.

C=350+0.8(DI)

Saving function

S=-350+0.2(DI)

When DI=300

S=-350+0.2(300)

= -350+60

= -$290

Hence option fifth is the correct answer.

14.

When saving is zero

S=-350+0.2(DI)

0 =-350+0.2(DI)

0.2(DI)=350

DI=350/0.2

=$1,750

Hence option second is the correct answer.

15.

When saving is zero

S=-350+0.2(DI)

0 =-350+0.2(DI)

0.2(DI)=350

DI=350/0.2

=$1,750

Hence option fifth is the correct answer.