Consider the table below when answering the following questions. For this hypothetical economy, the...

Question

Consider the table below when answering the following questions. For this hypothetical economy, the marginal propensity to consume is constant at all levels of real GDP, and investment spending is autonomous. Equilibrium real GDP is equal to $8,000. There is no government.

a. Complete the table. What is the marginal propensity to consume? What is the marginal propensity to save?

b. Draw a graph of the consumption function. Then add the investment function to obtain C + I.

c. Under the graph of C + I, draw another graph showing the saving and investment curves. Does the C + I curve cross the 45-degree reference line in the upper graph at the same level of real GDP where the saving and investment curves cross in the lower graph, at the equilibrium real GDP of $8,000? (If not, redraw your graphs.)

d. What is the average propensity to save at equilibrium real GDP?

e. If autonomous consumption were to rise by $100, what would happen to equilibrium real GDP?

Q

David · Accepted Answer

(a)​ ​The​ ​real​ ​GDP,​ ​consumption,​ ​saving​ ​and​ ​investment​ ​for​ ​a​ ​hypothetical​ ​economy​ ​is​ ​given  
Below: 
 
Real 
GDP 
Consumptio
n 
Saving= 
Real 
GDP-Consumption 
Real  
Investment
$2000 $2000 $0 $1200 0 0 
$4000 $3600 $400 $1200 0.8 0.2 
$6000 $5200 $800 $1200 0.8 0.2 
$8000 $6800 $1200 $1200 0.8 0.2 
$10000 $8400 $1600 $1200 0.8 0.2 
$12000 $10,000 $2000 $1200 0.8 0.2 
 
At​ ​$2,000​ ​level​ ​of​ ​real​ ​GDP,​ ​saving​ ​equals​ ​to​ ​zero​ ​because​ ​real​ ​GDP​ ​is​ ​equals​ ​to​ ​consumption.

Consider the table below when answering the following questions. For this hypothetical economy, the marginal propensity to consume is constant at all levels of real GDP, and investment spending is...

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