The Following Table Shows the Relationship Between Income and Consumption

question 137

Essay

The following table shows the relationship between income and consumption in an economy. $$\begin{array} { | c | c | } \hline \begin{array} { c } \text { Income } ( Y ) \text { (in } \\\text { billions of dollars) }\end{array} & \begin{array} { c } \text { Consumption } ( C ) \text { (in } \\\text { billions of dollars) }\end{array} \\\hline 0 & 8 \\\hline 10 & 15 \\\hline 20 & 22 \\\hline 30 & 29 \\\hline 40 & 36 \\\hline 50 & 43 \\\hline 60 & 50 \\\hline 70 & 57 \\\hline 80 & 64 \\\hline 90 & 71 \\\hline 100 & 78 \\\hline\end{array}$$ Assume that investment (I) is $5 billion, government purchases (G) are $4 billion, and net exports (X) are $1 billion.
(A) What is the numerical value of the marpinal propensity to cansume?
(B) Canstruct a table that is analacous to the ane presented in the text far this ecanamy. What is the level of incame at the paint of spending balence?
(C) For this level of income, calculate national saving. Is national saving equal to investrment plus net exgarts?
(D) Suppose the above problem is modlified to include tares. Suppose first that at any level of income, consumers must pay tares equal to 3 billion. Find the new level of spending balance by modilying the table. Hint: If cansumers have to pay taxes, this is incame thet they cannot use far consumption. Verify again that national 5aving is equal to investment plus net exports. Find private and govermment saying
(E) Graphically ilustrate what happens to 5pending balance when the government increases tares by $\$ 3$ million.

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