You have the following information about a small country a) Calculate the marginal propensity to consume of
Question:
You have the following information about a small country a) Calculate the marginal propensity to consume of this country is the (constant) proportion of the increase in disposable income that is devoted to the increase in consumption. There therefore exists a linear relationship
C = PmC Rd linking the change in consumption (C) to the change in disposable income (Rd), where PmC is the marginal propensity to consume. We can calculate the PmC from any variation of consumption in the table.) (7.5 points)
b) Calculate savings at each level of disposable income. (5 points)
c) Calculate the marginal propensity to save (Use the same intuition as for calculating the marginal propensity to save.) (7.5 points)
d) Plot the consumption and savings function in a graph and calculate the slopes of these functions (use Excel). Write the consumption function (The function of consumption is generally written C = PmC Rd + b, where b is the consumption autonomous (incompressible consumption when disposable income is zero)). (7.5 points)
e) For what income bracket does the population of this country pay dissaving? (7.5 points
Disposable income (Rd) (Millions of $ per year) | Consumer spending (VS) (Millions of $ per year) |
0 | 5 |
10 | 13 |
20 | 21 |
30 | 29 |
40 | 37 |