m/c question #2 ... also hard (1 Viewer)

[Too right]

The following table shows data for income, consumption and investment in a hypothetical economy.

Income ($m) Consumption Investment

0 1000 200
1000 1800 200
2000 2600 200
3000 3400 200


In this economy, what is the equilibrium level of national income

a) $1000 m
b) $200 m
c) $6000 m
d) $1200 m

 

[Too right]

(picture this as a table)

income consumption investment
0000 1000 200
1000 1800 200
2000 2600 200
3000 3400 200

 

[Tommy_69]

(picture this as a table)

income consumption investment
0000 1000 200
1000 1800 200
2000 2600 200
3000 3400 200

I really have no idea about this question are u missing something? National Income is calculated by C+I (which is aggregate demand). The only thing i have figured out from this table is the MPC which is 0.8

Change in Consumption = 800
Change in Income = 1000

800/1000 = 0.8

 

[kouklitsa]

ok then :s i have no idea how that works.. coz Y=C+I for equilibrium.. it doesnt appear to be the case in any of them

 

[word.]

deriving a relationship between income and consumption:
C = 1000 + 0.8Y

equilibrium occurs when Y = C + I

Y = 1000 + 0.8Y + I

but I = 200

so 0.2Y = 1200

hence c) Y = 6000

 

[kouklitsa]

deriving a relationship between income and consumption:
C = 1000 + 0.8Y

equilibrium occurs when Y = C + I

Y = 1000 + 0.8Y + I

but I = 200

so 0.2Y = 1200

hence c) Y = 6000

yeh that looks right! ive seen it done like that before.... how did you derive c = 1000 + 0.8 Y though?

 

[fujiwara.takumi]

yes i don't quite understand, is that the MPC? ur using there

 

[datacore]

c = autonomous consumption + (MPC)Y

so when y = 0, consumption = 1000
so u have

c = 1000 + MPC(y)

now mPC = change in consumption / change in income

so 800/1000

so C = 1000 + 0.8Y

 

[ando_88]

To derive C = 0.8Y + 1000 do the following:

we know that the MPC is 0.8 right?

which means that 80% of all income will go towards consumption, so

C = 0.8Y

BUT at an income of $0, there is still $1000 of autonomous consumption, which is basically consumption on neccessities. Therefore even if income is 0, people still have to spend $1000 on needs

therefore C = 1000 + 0.8Y

 

[Too right]

hey thanx for yourhelp, you guys explained it well

cheers

 

[fujiwara.takumi]

Thanks, yet i still don't htink i'll get it in the exam

 

[gorgo31]

Yup - that's the foolproof way if you're smart.

OR, if you're like me, you do the really easy thing - look at Consumption and see that it is increasing by 800.

Now, we know that Y = C+ I, so count forward with C like this 4200 (when Y = 4000), 5000 (when Y = 5000) 5800 (when Y = 6000) AND PRESTO! I is constant at 200, so C at 5800 + 200 = 6000.

Thus, Ye = 6000.

Easiest way for those of us who don't do Maths

 

[fujiwara.takumi]

yeh lol thats wat i do. haha. but im so lazy i usually just geuss, both methods involve effort.

 

[datacore]

income consumption investment
0000 1000 200
1000 1800 200
2000 2600 200
3000 3400 200


u can get the MPC by looking at any two lines

e.g 0000 and 1000
1000 and 1800

the increase in consumption is 800, compared to the increase in income which is 1000
so 800/1000 = 0.8

or 1000 and 1800
2000 and 2600

increase in consumption is 800, increase in income is 1000
800/1000 = 0.8

thats how i work it out

 

[fujiwara.takumi]

thanks man. for the effort and everything. i now get it. but do they ever use a non constant value increase?

 

[know_it_all]

is Y= C+I in our syllabus?

 

[fujiwara.takumi]

u bet ur bottom dollar

 

[know_it_all]

ok i get how to find the MPC with the whole consumption investment change stuff
but soo not following with this whole 'autonomous consumption'
never herda that

 

[Jago]

autonomous consumption is the value of C when Y = 0

 

[nick1048]

6000, look at the rate of change of income, and the rate of change of consumption... map the trends until u hit 6k.