Question

Write down the consumption function and the saving function and Find the value of consumption from the following data and plot the consumption function on a graph. With the same information in the table above find the Savings at each level of Yd. (5)
Solution;
Consumption Function:________________________________________(1)
Saving Function:______________________________________________(1)
Fill in the table with a help of consumption and savings function : (4)
C=
Co
c
Yd
20
0.2
0
20
0.2
100
20
0.2
200
20
0.2
300
20
0.2
400
S

Consumption function: Graph (you may insert a screen shot of the graph or draw it on the excel if you know how to do it otherwise a handwritten screen shot would also be fine.) (2)
Q2. If MPC or c is 0.2 then what is what mps? (1)
Q3. Why the sum of MPS and MPC is equal to 1. (1)
Q4. If there is a change in the autonomous Consumption from 100 to 105, the final change in the GDP would be greater than that. Explain. (2)
Q5. What is MPC and Why MPC is a very volatile variable and how it is responsible for changes in final GDP? (2)

Q6. Predict the effect of following events on the AE and the Output. (2)
a. Decrease in the Investment:
b. Increase in the Autonomous Consumption.

Answer 1

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