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Essay / Research Paper Abstract
This 6 page paper answers four questions set by the student. The first looks at the consumption function and how to calculate marginal propensity to consume. The second question considers the way the equilibrium point can be calculated when knowing industry investment and government expenditure. The third question outlines how the government may increase the level of expenditure and the last explains how this could impact on national income. The bibliography cites 3 sources.
Page Count:
6 pages (~225 words per page)
File: TS14_TEconsumpot.rtf
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Unformatted sample text from the term paper:
the different years. The consumption function states that as income increases the level of expenditure will be dependant on the level of their income, so as income increases
so does consumption. We can see this below. year income net income consumption Savings 1 100 80 80 0 2 200 160 140 20 3 250 200 170 30
4 300 240 200 40 5 400 320 260 60 From this we can calculate the marginal propensity to consume by taking the change in the consumption and dividing it
by the change in the income. year Increase in income Increase in expenditure MPC 1 2 80 60 0.75 3 40 30 0.75 4 40 30
0.75 5 80 60 0.75 This tells us that when there is an increase in income 75% of the increase will be used for consummation purposes and 25% will be
saved. The equation for this is Consumption = $80 + (3/4)(expected level of disposable income) (Nellis and Parker, 1996). Part B When looking at the way in which a
n economy operates and were there is an equilibrium we need to remember that the expenditure of one person is the income of another and when calculating the level of
equilibrium this will filter down. In this question we are told there is government expenditure of 100 billion and that industry is making investments of 80 billion. To calculate
this we need to identify the income and expenditure. If the government is spending 100 billion, this is the income to industry. If the industry is making 80 billion in
investment, this is its spending or consumption. This means that 80% of the income is being spent and 20% is being saved. Part C The government spending goes up
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