[5] a. If disposable income were $7400‚ how much would be saved? b. What is the "break-even" level of disposable income? c. What is this economy’s marginal propensity to consume? d. What is the average propensity to consume when disposable income is $7000? When disposable income is $8000? Qs.4 a. Suppose a $100 increase in desired investment spending ultimately results in a $300 increase in real GDP. What is
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ASSAIGHNMENT NAME | DIVYA J.JATHANNA | ROLL.NO. | | COURSE | MBA-SEMISTER-1 | SUBJECT | MANAGERIAL ECONOMICS | SUBJECT CODE | MB0042 | LEARNING CENTER | TRACKS INDIA INFOTECH - 01508 | ASSIGHNMENT NO | | DATE | | SET 1 1) Mention the demand function. What is elasticity of demand? Describe the determinants of elasticity of demand. Answer: Demand function: The demand for a product or service is affected by its price‚ the income of the individual‚ the price of the other
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the marginal propensity to save and the capital-output ratio. This is a very significant result. It tells us how the economy can grow such that the growth in the capacity of the economy to produce is matched by the demand for the economy’s output. Consider this numerical illustration. Suppose the economy is currently operating at a capacity production level of 1000 per year and has a capital-output ratio of 3. This means the capital stock is 3000. Assume the marginal propensity to consume out
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EXAM 2 STUDY GUIDE – CHAPTERS 7 - 10 (partial) ECON 204 SPRING 2013 Chapter 7 Inflation Deflation Effects of Inflation 1. Price effects a. Real vs. nominal income 2. Income effects 3. Wealth effects Money illusion Measuring inflation • Consumer Price Index (CPI) • Market basket Construction of a Price Index 1. Calculate cost of basket in each year 2. Create Price Index using chosen base year = ∗ 100 • Say’s Law Keynesian Theory • Inherently unstable economy • Government
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is the income multiplier. (If c1 is the marginal propensity to consume‚ and $1 is spent in the economy‚ the person who gets that dollar will spend c1 of it‚ the person who receives that c1 will spend c1(c1) or c12‚ and so forth. Without deriving it‚ it turns out that 1 + c1 + c12 + c13 + …….. + c1n converges to 1/{1 – c1}‚ or the multiplier.) Let’s say we estimate a consumption function from the available data‚ and the marginal propensity to consume is estimated to be c1 = .80 (meaning that
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Project The Classical Theory Of Employment amd output The fundamental principle of the classical theory is that the economy is self-regulating. Classical economists maintain that the economy is always capable of achieving the natural level of real GDP or output‚ which is the level
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example‚ if you get promoted and you get a salary increase‚ this change will be probably permanent and so your consumption over time will probably rise. If instead you win the lottery‚ this represents a transitory income and you will probably not consume all of this transitory income. The key point is that the consumption plan does not depend on the transitory components. To provide empirical content to this hypothesis‚ Friedman added the assumptions that the transitory components are uncorrelated
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8/155.6) x 100 = 9.5116 Growth rate = (9.5116 – 8.4196)/8.4196 x 100% = 12.97% 2. When Bill’s disposable income is $55‚000‚ his consumption spending is $47‚000. Suppose his disposable income increases to $75‚000. Suppose his marginal propensity to consume is .70. His new consumption spending will be: a. Less than $52‚000 b. from $52‚000 to $54‚999 c. from $55‚000 to $59‚999 *d. from $60‚000 to $63‚999 e. $64‚000 or higher ANSWER: Change in income = $75‚000 - $55‚000 =$20‚000 Change
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equal for all three budget lines. E) Cannot be determined without studying the indifference curves. 5) 6) Larry consumes only beer (B) and chips (C). The magnitude of the slope of his budget line (with beer measured on the vertical axis) is A) Y/PB. B) PC × PB. C) PC/PB. D) PC/Y. E) Y/PC. 6) 7) The magnitude of the slope of an indifference curve is A) the marginal
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out of each dollar of disposable income D. he marginal propensity to consume is .20. 3) In a model with no government or foreign sector‚ if saving is defined as S = - 200 + (0.1)Y and investment is Io = 200‚ what is the equilibrium level of consumption? A. 3‚800 B. 3‚600 C. 1‚800 D. 2‚000 E. 1‚000 4) In a model with no government or foreign sector‚ if autonomous consumption is Co = 80‚ investment is Io = 70‚ and the marginal propensity to save is s = 0.25‚ equilibrium income is A.
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