# Answer to Question #79072 in Economics of Enterprise for Gladys

Question #79072

Marginal propensity to consume (MPC) = 0.25, Investment (I) = 5500, Government

Spending (G) = 1200, Autonomous consumption (α) = 1500,

Net Exports (X-M) = 2,600

Y= C+ I + G + X-M

C= α + βY

Required;-

i) Calculate the equilibrium level of National Income. (3 marks)

ii) Calculate the equilibrium consumption and savings (4 marks)

iii) Compute a simple investment multiplier and interpret it

Spending (G) = 1200, Autonomous consumption (α) = 1500,

Net Exports (X-M) = 2,600

Y= C+ I + G + X-M

C= α + βY

Required;-

i) Calculate the equilibrium level of National Income. (3 marks)

ii) Calculate the equilibrium consumption and savings (4 marks)

iii) Compute a simple investment multiplier and interpret it

Expert's answer

i) Calculate the equilibrium level of National Income.

Y = 1500+0.25Y+5500+1200+2600

Y = 0.25Y+10800

0.75Y = 10800

Y = 14400

ii) Calculate the equilibrium consumption and savings.

The consumption function is C= 1500 + 0.25Y

C = 1500+0.25x14400 = 5100

The saving function is S = Y – C

S = 14400 – 5100 = 9300

iii) Compute a simple investment multiplier and interpret it.

The multiplier of investments shows, in what proportion the final increase in the national income is greater than the initial increase in autonomous investments.

M = 1 / (1-0.25) = 1.33

The multiplier of investments in the form of a coefficient makes it possible to determine the multiplier effect. The effect of such investments will be: 5500 x 1.33 = 7333

Y = 1500+0.25Y+5500+1200+2600

Y = 0.25Y+10800

0.75Y = 10800

Y = 14400

ii) Calculate the equilibrium consumption and savings.

The consumption function is C= 1500 + 0.25Y

C = 1500+0.25x14400 = 5100

The saving function is S = Y – C

S = 14400 – 5100 = 9300

iii) Compute a simple investment multiplier and interpret it.

The multiplier of investments shows, in what proportion the final increase in the national income is greater than the initial increase in autonomous investments.

M = 1 / (1-0.25) = 1.33

The multiplier of investments in the form of a coefficient makes it possible to determine the multiplier effect. The effect of such investments will be: 5500 x 1.33 = 7333

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