Question

1. Fill in 7 blanks in the following table and interpret your results. Show your calculations and units of account.

Year	Real GDP (National Income), $	Consumption, $	Saving, $	Marginal Propensity to Consume	Marginal Propensity to Save
2015	9,000	8,000		---------	---------
2016	10,000	8,600
2017	12,000	9,300

1. Calculations:

2. Fill in the blanks using your answers in part a):

Answer:   

In 2016, out of each $1 of additional income (real GDP) a country spent____________, while saved the rest_____________.

3. Fill in the blanks using your answers in parts a) and b):

Answer:

If in 2016 this country’s real national income went up by $3,800, the consumption spending went up by__________%,which is equivalent to$____________.

Answer 1

Year	Real GDP (National Income), $   (Y)	Consumption, $   (C )	Saving, $ (Real GDP – Consumption) (S)	Marginal Propensity to Consume	Marginal Propensity to Save
2015	9,000	8,000	1000	---------	---------
2016	10,000	8,600	1400	0.6	0.4
2017	12,000	9,300	2700	0.35	0.65

Answer to the question no. a:

The MPC can be calculated by: (Change in the consumption) / (Change in the real income)

The Income during 2015 and 2016 has increased from $9000 to $10000. Thus, the change in income is $1000.

The consumption expenditure during 2015 and 2016 has increased from $8000 to $8600. Thus, the change in income is $600.

The MPC can be calculated by:

MPC₍₂₀₁₆₎ = (Change in the consumption) / (Change in the real income) = $600 / $1000 = 0.6

Thus,

In 2016, out of each $1 of additional income (Real GDP) a country spent $0.6, while saved the rest $0.4.

Answer to the question no. b:

The MPC in 2016 is 0.6.

Thus,

If in 2016 this country’s real national income went up by $3,800, the consumption spending went up by 60%, which is equivalent to $2280. Since, the MPC is 0.6, thus, any increase in income will lead to 60% increase in the consumption income.