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)

Rahul Sunny answered 1 year ago

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