Question

# C. Refer to table given below. 1. Fill-in the missing items in the table. 2. Identify...

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

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

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