Question

Complete the following table which depicts a hypothetical economy in which the marginal propensity to save is constant at all levels of real​ GDP, investment spending is​ autonomous, and there is no government.

​Note: Enter whole numbers and use the minus sign where

needed.

Real GDP	Consumption	Saving	Investment
​ $ 0	​$500	​$nothing	​$1500
2000	2000	nothing	nothing
4000	nothing	nothing	nothing
6000	nothing	nothing	nothing
8000	nothing	nothing	nothing
10000	nothing	nothing	nothing

Answer 1

Real GDP, Y	C	S = Y - C	Investment
0	500	0 - 500 = -500	$1500
2000	2000	2000 - 2000 = 0	1500
4000	3500	4000 - 3500 = 500	1500
6000	5000	6000 - 5000 = 1000	1500
8000	6500	8000 - 6500 = 1500	1500
10,000	8000	10,000 - 8000 = 2000	1500

(C = Cbar + cY
c = Change in C/Change in Y = (2000-500)/(2000-0) = 1500/2000 = 0.75
At Y = 4000, C = Cbar + cY = 500 + 0.75(4000) = 500 + 3000 = 3500
At Y = 6000, C = Cbar + cY = 500 + 0.75(6000) = 500 + 4500 = 5000
At Y = 8000, C = Cbar + cY = 500 + 0.75(8000) = 500 + 6000 = 6500
​​​​​​​At Y = 10,000, C = Cbar + cY = 500 + 0.75(10,000) = 500 + 7500 = 8000

S = Y - C

I is autonomous and thus same at all levels of real GDP.)
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