Transcript CH4 Problems - Dr. Magdy El

Problem (1)
C = 20 + 0.8 Y Consumption Function
 I = 100
Investment
Find the following:
1. Marginal Propensity to Consume (MPC):
MPC = 0.8
2. Marginal Propensity to Save (MPS):
MPC + MPS =1

MPS = 1 – MPC
= 1 – 0.8 = 0.2
1
C = 20 + 0.8 Y Consumption Function
I = 100
Investment
3.The Equilibrium Domestic income (Y):
Y=C+I
Y = 20 + 0.8 Y + 100
Y – 0.8 Y = 120
(1- 0.8) Y = 120
0.2 Y = 120
Y = 120/0.2 = 600
4. Autonomous Consumption (Ca ):
= 20
5. Induced Consumption (MPC)Y):
= 0.8 * 600 = 480
2
C = 20 + 0.8 Y Consumption Function
I = 100
Investment
6. Consumption at Equilibrium (C):
C = Autonomous Consumption + Induced
Consumption
C = 20 + 480 = 500
7. Saving at Equilibrium (S):
S = Y – C = 600 – 500 = 100
S=I
3

8- show the equilibrium Y graphically?
S AND i
S
100
n
I
0
600
Y
4
Problem (2)
C = 10 + 0.7 Y
I = 50
Find the Following:
1. Marginal Propensity to Consume (MPC)
MPC = 0.7
2. Marginal Propensity to Save (MPS)
MPC = 1 – MPC = 1 - 0.7 = 0.3
3. Autonomous Consumption ( Ca ) = 10
4. Y at equilibrium
Y=C+I
Y = 10 + 0.7 Y + 50
Y – 0.7 Y = 10 + 50
(1 – 0.7 ) Y = 60
0.3 Y = 60
Y = 60 / 0.3 = 200
5
C = 10 + 0.7 Y
I = 50
5. Induced Consumption
= MPC * Y = 0.7 * 200 = 140
6. Total Consumption
= Autonomous Consumption + Induced C.
= 10 + 140 = 150
7. Total Saving
S = Y- C
S = 200 – 150 = 50 S= I = 50
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showthe
theequilibrium
equilibriumYYgraphically?
graphically?
8-8-show
C
S
n
50
I
0
200
Y
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Problem (3)
C = 50 + 0.6 Y
Find Saving Function
Solution
S = - 50 + 0.4 Y
Problem (4)
S = - 50 + 0.2 Y
Find Consumption Function
Solution
C = 50 + 0.8 Y
________________________
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Problem (5)
C  50  0.6Y
Find the autonomous investment multiplier (K
)
t
Solution
1
1
1
Kt 

  2.5
1 MPC 1 0.6 0.4
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