an economys consumption function is depicted in the table below.\n| disposable income $y_d$ ($, billions) |…

an economys consumption function is depicted in the table below.\n| disposable income $y_d$ ($, billions) | consumption $c$ ($, billions) |\n| ---- | ---- |\n| 0 | 100 |\n| 100 | 170 |\n| 200 | 240 |\n| 300 | 310 |\n| 400 | 380 |\n| 500 | 450 |\nthe economys marginal propensity to save is\na. 0.70\nb. - 0.033\nc. 0.30\nd. $ - 10 billion\nthe average propensity to consume when the disposable income is $500 billion is equal to\na. 0.70\nb. 0.90\nc. 0.100\nd. 0.95

an economys consumption function is depicted in the table below.\n| disposable income $y_d$ ($, billions) | consumption $c$ ($, billions) |\n| ---- | ---- |\n| 0 | 100 |\n| 100 | 170 |\n| 200 | 240 |\n| 300 | 310 |\n| 400 | 380 |\n| 500 | 450 |\nthe economys marginal propensity to save is\na. 0.70\nb. - 0.033\nc. 0.30\nd. $ - 10 billion\nthe average propensity to consume when the disposable income is $500 billion is equal to\na. 0.70\nb. 0.90\nc. 0.100\nd. 0.95

Answer

Explanation:

Step1: Recall marginal - propensity to save formula

The marginal propensity to save (MPS) is calculated as $\Delta S/\Delta Y_d$, and since $S = Y_d - C$, $MPS=1 - MPC$ (marginal propensity to consume). MPC=$\frac{\Delta C}{\Delta Y_d}$.

Step2: Calculate $\Delta C$ and $\Delta Y_d$

Taking two - consecutive points from the table, say when $Y_d$ changes from 0 to 100 (so $\Delta Y_d = 100$) and $C$ changes from 100 to 170 (so $\Delta C=70$). Then $MPC=\frac{\Delta C}{\Delta Y_d}=\frac{170 - 100}{100 - 0}=0.7$.

Step3: Calculate MPS

Since $MPS = 1 - MPC$, then $MPS=1 - 0.7 = 0.3$.

Step4: Recall average - propensity to consume formula

The average propensity to consume (APC) is calculated as $APC=\frac{C}{Y_d}$.

Step5: Find C and $Y_d$ values for $Y_d = 500$

From the table, when $Y_d = 500$ billion, $C = 450$ billion.

Step6: Calculate APC

$APC=\frac{450}{500}=0.9$.

Answer:

Question 1.4: C. 0.30 Question 1.6: B. 0.90