Mr. Weiss
5
Mr. Weiss Section 3 – Module 21 Section 3 – Module 21 1. In Mainland, a small, closed economy with 1. In Mainland, a small, closed economy with no government sector, when disposable income no government sector, when disposable income is $800, consumer spending is $800, and when is $800, consumer spending is $800, and when disposable income is $1,800, consumer disposable income is $1,800, consumer spending is $1,600. Assume that the spending is $1,600. Assume that the aggregate price level and the interest rate aggregate price level and the interest rate are fixed in mainland. are fixed in mainland. a. a. What is the value of autonomous consumer What is the value of autonomous consumer spending in Mainland? spending in Mainland? b. b. What is the value of the MPC in Mainland? What is the value of the MPC in Mainland? c. c. What is the consumption function in What is the consumption function in Mainland? Mainland?
description
Mr. Weiss. Section 3 – Module 21. - PowerPoint PPT Presentation
Transcript of Mr. Weiss
Mr. Weiss
Section 3 – Module 21 Section 3 – Module 21
1. In Mainland, a small, closed economy with no 1. In Mainland, a small, closed economy with no government sector, when disposable income is $800, government sector, when disposable income is $800, consumer spending is $800, and when disposable consumer spending is $800, and when disposable income is $1,800, consumer spending is $1,600. income is $1,800, consumer spending is $1,600. Assume that the aggregate price level and the interest Assume that the aggregate price level and the interest rate are fixed in mainland.rate are fixed in mainland.
a.a.What is the value of autonomous consumer spending What is the value of autonomous consumer spending in Mainland?in Mainland?b.b.What is the value of the MPC in Mainland?What is the value of the MPC in Mainland?c.c.What is the consumption function in Mainland?What is the consumption function in Mainland?
Mr. Weiss
Section 3 – Module 21 Section 3 – Module 21
a. The value of autonomous consumer spending in a. The value of autonomous consumer spending in Mainland is $160. To find this value, first recall that the Mainland is $160. To find this value, first recall that the consumption function can be written as C=A + MPC x YD. consumption function can be written as C=A + MPC x YD. Next, find the MPC, which is the change in consumer Next, find the MPC, which is the change in consumer spending divided by the change in disposable income, or spending divided by the change in disposable income, or 800/1000= 0.8., substitute one of the consumer spending 800/1000= 0.8., substitute one of the consumer spending and disposable income combinations into the consumption and disposable income combinations into the consumption function to find the value of autonomous consumer function to find the value of autonomous consumer spending: thus, C=A + 0.8 x YD and 800 = A + (0.(8) x (800) spending: thus, C=A + 0.8 x YD and 800 = A + (0.(8) x (800) or A = $160.or A = $160.
Mr. Weiss
Section 3 – Module 21 Section 3 – Module 21
1. In Mainland, a small, closed economy with no government 1. In Mainland, a small, closed economy with no government sector, when disposable income is $800, consumer spending sector, when disposable income is $800, consumer spending is $800, and when disposable income is $1,800, consumer is $800, and when disposable income is $1,800, consumer spending is $1,600. Assume that the aggregate price level spending is $1,600. Assume that the aggregate price level and the interest rate are fixed in mainland.and the interest rate are fixed in mainland.
b. What is the value of the MPC in Mainland?b. What is the value of the MPC in Mainland?
b. The MPC is 0.8. (See part A answer).b. The MPC is 0.8. (See part A answer).
Mr. Weiss
Section 3 – Module 21 Section 3 – Module 21
1. In Mainland, a small, closed economy with no government 1. In Mainland, a small, closed economy with no government sector, when disposable income is $800, consumer spending sector, when disposable income is $800, consumer spending is $800, and when disposable income is $1,800, consumer is $800, and when disposable income is $1,800, consumer spending is $1,600. Assume that the aggregate price level spending is $1,600. Assume that the aggregate price level and the interest rate are fixed in mainland.and the interest rate are fixed in mainland.
c. What is the consumption function in c. What is the consumption function in Mainland?Mainland?
c. The consumption function is C=160 + 0.8 x c. The consumption function is C=160 + 0.8 x YD. See part AYD. See part A.
Mr. Weiss
Section 3 – Module 21 Section 3 – Module 21
