Question

In: Economics

Real GDP, consumption, and the marginal propensity to consume (MPC) for five hypothetical countries are shown...

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.

Country Real GDP (Billions) Consumption (Billions) MPC Current Level of Saving (Billions) New Level of Saving (Billions)
A $40 $40 0.95 $0
B 50 32 0.75
C 70 56 0.8
D 100 120 0.9
E 180 160 0.95

Solutions

Expert Solution

(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)


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