Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Question
Chapter 23, Problem 1.1P
To determine
The relationship between MPC and MPS and
Expert Solution & Answer
Explanation of Solution
Option (a):
MPC is the marginal propensity to consume which represents that portion of change in income that is consumed or spent.
Option (b):
MPS is the marginal propensity to save which represents that portion of change in income that is saved.
Option (c):
Aggregate output refers to the total quantity of goods and services produced over a given period of time in an economy.
Option (d):
Aggregate income refers to the total amount received by all factors of production in a given time period.
The relationship between MPC and MPS can be established as follows:
Since all the income is either consumed (spent) or saved;
The relationship between aggregate output and aggregate income is that both are actually the same thing viewed from different points.
Economics Concept Introduction
Concept introduction:
Marginal propensity to consume (MPC): Marginal propensity to consume refers to the sensitivity of change in the consumption level due to the changes occurred in the income level.
Marginal propensity to save (MPS): The ratio of change in saving when there is a change in disposable income.
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Students have asked these similar questions
What is the difference between aggregate expenditure and aggregate demand? Why is the aggregate demand curve downward sloping while the aggregate expenditure line is upward sloping?
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02:59:16
eBook
Print
References
a. Fill in the missing numbers (gray-shaded cells) in the table.
Instructions: In the table, enter your answers for consumption as a whole number. Round your answers for APC and APS to 4 decimal
places. Round your answers for MPC and MPS to 1 decimal place. If you are entering any negative numbers be sure to include a
negative sign (-) in front of those numbers.
Level of Output and
Income (GDPDI)
$240
260
280
300
320
340
360
380
400
Consumption
Saving
$-4
0
4
8
12
16
20
24
28
APC
APS
MPC
MPS
How might the following events affect the real gross domestic product (GDP) and what
would happen to economic well-being in each case? Briefly explain.
The government of Pakistan decides a lockdown in the economy for an indefinite period of time.
The discovery of high yielding variety (HYV) seeds improves farm harvests.
Goods transporters observe strike in the economy.
Small and Medium Size Enterprises (SMEs) experience subdued demand causing them to lay off employees.
Suppose the parliament of Pakistan passes new environmental laws that restrict firms from using production techniques that cause pollution.
A large number of people join university as full-time students.
Chapter 23 Solutions
Principles of Economics (12th Edition)
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