out of every $100 increase in disposable income is consumed? A) $166 B) $34 C) 0.34 D) 0.66 E) More information is needed to determine the MPC. 5) 1 6) If the marginal propensity to consume is ________‚ then a $2 trillion increase in disposable income increases consumption expenditure by $1.2 trillion. If the marginal propensity to consume is ________‚ then a $2 trillion increase in disposable income increases consumption expenditures by $1.6 trillion. A) 0.6; 0.8 B) 1.67; 2.25 C) 1.2; 1.6 D) 6.0;
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The marginal propensity to consume (MPC) is defined as the additional consumption that results from one dollar increase in disposable income. Bill’s disposable income goes from $100‚000 in 2001 to $200‚000 in 2002‚ and his consumption spending goes from $80‚000 in 2001 to $140‚000 in 2002. Which of the following statements about Bill is true? Bill’s MPC is equal to 0.6. Which of the following changes in disposable income would lead to the greatest increase in consumption? a $20‚000 increase
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1 This partial fill-in paper consists of 14 pages plus instructions for the completion of a mark-reading sheet. Read the following instructions CAREFULLY before answering the paper. The paper is divided into two sections: Section A and Section B. SECTION A Candidates must answer ALL the questions in this section. SECTION B In this section ALL the questions must be answered on the mark-reading sheet which is supplied. Carefully follow the instructions for the completion of the mark-reading
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product. If such a tax is present within the economy‚ when the society becomes more prosperous‚ such as in the situation with demand-pull inflation‚ the citizens are taxed more‚ therefore decreasing the marginal propensity to consume‚ and decreasing consumption. The marginal propensity to consume is the fraction of any change in disposable income spent for consumer goods. If this decreases‚ demand will not be as high above‚ or even above where the supply is‚ therefore reducing the demand - pull
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ECS1601/202/2/2011 STREPIESKODE BAR CODE Department of ECONOMICS Economics IB (ECS1601) Tutorial letter 202/2011 (Second semester) 1. Solutions to Assignments 03 and 04. UNISA 2 Dear Student The purpose of this tutorial letter is to provide you with the correct answers to the assignments. 1. The solutions to Assignments 03 and 04. Assignment 03 - Unique number 810132 Explanations 3.1 The correct alternative is (3) According to the assumptions of the simple Keynesian model
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consumption equals zero. 3. The multiplier is greater than 1 if T = 0 and G = 0. 4. Paradox of saving occurs when the attempts by people to save more lead to a decline in output and an increase in saving in the short run. 5. When MPC (marginal propensity to consume) increases and investment decreases‚ goods market equilibrium output increases. Part II: NATIONAL ACCOUNTS (25 marks) For Part II‚ consider an artificial economy and assume the following: 1. Fill in the following table: (6 marks) year
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demand. (iv) Explain the meaning of gross national disposable income. (v) Why is the AR curve parallel to the x axis in a perfectly competitive market? (vi) What is meant by utility? Explain how total utility can be obtained from marginal utility. (vii) Define budget. When can there be a deficit in the budget? (viii) Explain the meaning of price discrimination in monopoly market. (ix) Define cross elasticity of demand. (x) How does Central Bank use moral suasion
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But every additional increase in income will be progressively less since a part of the income received will be saved. Thus we see that the income will not increase by only the initial investment but by many times more. The higher is the propensity to consume domestically produced goods and services‚ the greater is the multiplier effect. The government can influence the size of the multiplier
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If there is an increase in consumption‚ there will be a fall in savings If increase in savings‚ fall in consumption The proportion of any extra income that is earned by a person that is spent by them on consumption is called the marginal propensity to consume (MPC). So MPC = change in consumption Change in income Y=C+S APC+APS= 1 MPC+MPS = 1 Y C S APC APS MPC MPS 100 80 20 0.8 0.20 - -
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THE MULTIPLIER EFFECT When the government buys $20 billion of goods from Boeing‚ that purchase has repercussions. The immediate impact of the higher demand from the government is to raise employment and profits at Boeing. Then‚ as the workers see higher earnings and the firm owners see higher profits‚ they respond to this increase in income by rising their own spending on consumer goods. As a result‚ the government purchase from Boeing raises the demand for the products of many other firms in
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