Question

C. Refer to table given below.

1. Fill-in the missing items in the table.

2. Identify the break-even level of income.

Income consumption Saving APC

$ 240 ________ $ -4 $ ______

260 ________ 0 ______

280 ________ 4 ______

300 ________ 8 ______

320 ________ 12 ______

340 ________ 16 ______

3. Compute the multiplier (M0 if:

a). MPC =0.25, b). MPC=0.75 and c). MPC=0.9

2. Based on the results form question # 1.above, explain how multiplier

(M) is related to MPC.

B. Answer the following questions on the basis of the consumption expenditure

function given below.

C = 200 + 0.8Yd

1. Compute the value of C when Yd is $9000.

2. What are the values of:

a). MPC.

b). MPS.

3. Compute the multiplier for this function

Answer 1

2) Income = Consumption + Saving

APC = Consumption / Income

Income	Consumption	Saving	APC
240	244	-4	1.02
260	260	0	1.00
280	276	4	0.99
300	292	8	0.97
320	308	12	0.96
340	324	16	0.95

Break even occurs when consumption = income which occur when income is 260.

3) Multiplier = [1 / (1 - MPC)]

If MPC = 0.25, Multiplier = [1 / (1 - 0.25)] = 1.33

If MPC = 0.75, Multiplier = [1 / (1 - 0.75)] = 4

If MPC = 0.9, Multiplier = [1 / (1 - 0.9)] = 10

Based on the above analysis, we can say that MPC and multiplier have positive relationship with each other.

B) C = 200 + 0.8Yd

1) When Yd = 9,000

C = 200 + 0.8 * 9,000 = 7,400

2)

a) MPC = 0.8

b) As MPC + MPS = 1, MPS must be 0.2

3) Multiplier = [1 / (1 - MPC)] = [1 / (1 - 0.8)] = 5