Question

In Jan. 2020 Mary Jones was earning $40,000 in net income and spending $39,000 on a yearly basis. Mary Jones loses her job on April 1, 2020, and regains the same job ---at the same pay ---exactly six months later on October 1, 2020. During the six month layoff period, in the first three months, April, May and June, she earns $600 a week in EXTRA unemployment benefits -- IN ADDITION TO the $347 a week he earns, which is the average UI benefit for the workers in our state. Thus, for these 13 weeks, she earns $947 per week. In the next three months, July, August and September, she earns $347 per week in UI benefits. She and her family cut back on their spending by ten percent during the six months duration of unemployment, but then they go back to spending $39,000 on a yearly basis after he goes back to work. What is her net income level and spending level for 2020? What is his A.P.C. for the year?

Answer 1

Sol:

Let us calculate income during unemployment period of six months from April to October:

Income for first 3 months of unemployment from April to June:

Extra unemployment benefit per week is $600

UI benefit per week is $347

---------------

Total unemployment income

per week si    $947

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So income for the whole 13 weeks of first 3 unemployed months is 13 x 947 = $12,311 ---- A

In the next 3 months of unemployment that is form July to September, Mary Earns only $347 UI benefit per week.

So income for 13 weeks from July to September is 13 x $347 = $4,511 --- B

Total unemployment income is A+B = $ 12,311 + $4,511 = $16,822

Yearly spending is $39,000

Spending During 6 months of unemployment is cut by 10%

6 months spending out of $39,000 = 39,000 / 2 = $19,500

Out of this $19,500 cut back is 10% = 19,500 x 10 / 100 = $1950

So actual spenfing after 10% cut back during 6 months unemployment is $19,500 - $1,950 = $17,550 --- C

Mary is in employment for 6 months form January to March and October to December.

Spending duting employed period is half of $39, 000 (as calculated above) is = $19,500 ---- D

So total actual spending for the year is C + D = $17,550 + $19,500 = $37,050

Average Propensity to Consume (A.P.C.) is calclulated using the formula C / Y

Where C is Consumptun or Spending

Y is Income

Given yearly income is $40,000

to this add Additional income during unemployment as calculated above

So Actual yearly income Y is = $40,000 + $16,822 = $56,822

Yearly Spending or Consumption C is as calculated above = $37,050

Thus, APC = C / Y = 37,050 / 56,822 = 0.65