Why Choose Us?
0% AI Guarantee
Human-written only.
24/7 Support
Anytime, anywhere.
Plagiarism Free
100% Original.
Expert Tutors
Masters & PhDs.
100% Confidential
Your privacy matters.
On-Time Delivery
Never miss a deadline.
Complete the following table for the consumption function: C = $400 + 0
Complete the following table for the consumption function: C = $400 + 0.75Y. (Round all answers to three decimal places.)
| Real GDP (Y) | Average Propensity to Consume (APC) | Average Propensity to Save (APS) |
|---|---|---|
| $10,000 | ||
| $11,000 | ||
| $12,000 | ||
| $13,000 | ||
| $14,000 | ||
| $15,000 |
Expert Solution
The table is completed below and extended to include consumption (C) and saving (S).
| Y ($) | C ($) | S ($) | APC | APS |
|---|---|---|---|---|
| 10,000 | 7,900 | 2,100 | 0.790 | 0.210 |
| 11,000 | 8,650 | 2,350 | 0.786 | 0.214 |
| 12,000 | 9,400 | 2,600 | 0.783 | 0.217 |
| 13,000 | 10,150 | 2,850 | 0.781 | 0.219 |
| 14,000 | 10,900 | 3,100 | 0.779 | 0.221 |
| 15,000 | 11,650 | 3,350 | 0.777 | 0.223 |
C is derived from Y using the consumption function. For example, when Y is $13,000, C is:
- C = $400 + 0.75Y = $400 + (0.75)($13,000) = $10,150.
S is derived as the residual from subtracting C from Y. For example, when Y is $13,000, S is:
- S = Y - C = $13,000 - $10,150 = $2,850.
The APC is derived by dividing C by Y. For example, when Y is $13,000:
- APC = C/Y = $10,150/$13,000 = 0.781.
The APS can be derived in two ways:
- APS = S/Y = $2,850/$13,000 = 0.219, or
- APS = 1 - MPC = 1 - 0.781 = 0.219.
Note that from the consumption function equation, MPC remains constant at 0.75 for all levels of Y. However, from the table it can be seen that APC decreases as Y increases. This is because of the constant component of consumption ($400) is spread across higher levels of Y. Because of the residual relationship of APS to APC, APS therefore increases as Y increases.
Archived Solution
You have full access to this solution. To save a copy with all formatting and attachments, use the button below.
For ready-to-submit work, please order a fresh solution below.
