together correspond to nearly 45% of world’s GDP. Now‚ take into account the fact that by nature Indians and Chinese are savers. The household domestic savings in India is about 23% and China more than 25% significantly less than the U.S. The marginal propensity to consume in India is .65 while that in U.S. is about .9. Thus‚ if we calculate the consumption expenditure then India’s total consumption would be about .7 trillion‚ China’s 2 trillion and that of U.S. more than 10 triilion. Now lets consider
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d) Assuming that tax revenues are $7 billion‚ what is the value of savings? (1 mark) e) If GDP now rises to $80 billion and‚ as a result‚ the consumption of domestically produced goods rises to $58 billion‚ what is the MPCd? (i.e. marginal propensity to consume domestic goods) (2 marks) f) What is the value of the multiplier? (2 marks) g) Given an initial level of GDP of $80 billion‚ assume that spending on exports rises by $4 billion‚ spending on investment rises by $1 billion‚ while
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‘multiplier’ model: AD = Cp + Ip + G + X - M Cp = Co + c(Y-T) Ip = Io G = Go T = To + tY X = Xo M = Mo + mY where X and M are exports and imports of goods and services respectively‚ m is the marginal propensity to import‚ and all other variables have their usual meaning. (a) What is the equilibrium level of income‚ Ye‚ in terms of the parameters and exogenous variables of this model? Show this equilibrium diagrammatically and discuss the implications
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CHAPTER 3 – INTERDEPENDENCE BETWEEN MAJOR SECTORS‚ MARKETS AND FLOWS IN THE MIXED ECONOMY STUDY UNIT 1 Production‚ Income and Spending *Identify the three major flows in the economy Production – occurs and generates income Income - earned Spending – Buy available goods and services *Distinguish between a flow and a stock (Box 3-1 Stocks and Flows) STOCKS FLOWS Measured at a particular point in time NO time dimension Has a Time dimension – only measured over a period Water level
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tremendous increase in purchasing power of rural consumers will be courtesy bumper crops. The rural propensity to spend on durables and fast-moving consumer goods is expected to rise accordingly. Total credit flow to the agriculture sector through institutional channels is expected to increase. The setting up of agricultural export zones should help farmers and thus increased marginal propensity to consume. First‚ let’s get the obvious facts that everyone knows out of the way. Rural India is a major part
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National Income Determination Introduction • A key objective of Macroeconomics is to explain GDP growth and its fluctuations • Therefore‚ need to understand the forces that determine GDP (“National Income”) • John Maynard Keynes in his “General Theory of Employment‚ Interest and Money” (1936) developed a model of income determination • Known as Keynesian Theory of Income Determination • Aggregate spending / demand determines the level of aggregate output Concepts and Functions Actual
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economy‚ the aggregate consumption function takes the form C = aW + bY. The theory has the implication that high income leads to a low average propensity to consume over short periods of time. However‚ over a long period of time‚ wealth and income increase together which leads to a constant ratio W⁄Y and thus a constant average propensity to consume. However‚ the theory is criticized for not considering that the elderly have precautionary savings and bequests which will discourage dissaving
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1.0 INTRODUCTION In general definition‚ budgeting is the concerned with the transaction of financial resources into human purpose. Budget is refer to the spring financial statement‚ which focus on tax. There are a few principles of good budgeting that is comprehensiveness‚predictability‚ transparency and periodicity. Budgeting is effective in facility process when it forces awareness of overall fiscal constraints‚ enables the priontization of spending in the linewith policy objective. The budget
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for two goods would be the same – they are very generalised models‚ and do not take into account other factors. For example‚ not many consumers would spend their entire budget on said goods – one thing to consider would be a consumer’s marginal propensity to consume and save. Though both of the problems provide a framework and model of consumer decisions‚ they are not plausible when applying them to real-life terms‚ because we have imperfect knowledge. 1.2: The expression given in the question
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yields the same amount of extra (marginal) utility. How should the $10 income be allocated? UTILITY MAXIMIZING COMBINATION Algebraic Restatement of the Utility Maximization Rule MUx/Px = MUy/Py = MUz/Pz 8 utils$1=16 utils$2 MARGINAL UTILITY-PRICE RATIO: The ratio of the marginal utility obtained from consuming a good to the price of the good. This ratio is particularly important in determining consumer equilibrium‚ which is reached when the marginal utility-price ratios are the same
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