In: Economics
Real GDP, consumption, and the marginal propensity to consume (MPC) for five hypothetical countries are shown in the table below.
a. Enter the current level of saving in the appropriate column in the table.
b. Now suppose that GDP increases by $20 billion in each of the five countries. What would be the new level level of saving in each country? Show your answers in the table below.
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(a)
Current saving = Real GDP = Consumption
Country | Real GDP | Consumption | MPC | Current Saving | New Saving |
A | 40 | 40 | 0.95 | 0 | 1 |
B | 50 | 32 | 0.75 | 18 | 23 |
C | 70 | 56 | 0.80 | 14 | 18 |
D | 100 | 120 | 0.90 | -20 | -18 |
E | 180 | 160 | 0.95 | 20 | 21 |
(b)
New saving = Current saving + (1 - MPC) x Increase in GDP = Current saving + (1 - MPC) x $20 billion, computed as above.
(Excel screenshot)