(A) Value of The Marginal Propensity To Save Decreases.: Income 100 150

Worksheet 1
National Income determination in Closed Economy
1.What is the value of the tax multiplier if the MPC is 0.80?
2. What is the value of the government spending multiplier if the MPC is 0.67?
3. What is the tax multiplier if the MPS is 0.25?
4. The numerical value for the investment and government spending multiplier increases as the
(A) value of the marginal propensity to save decreases.
(B) value of the average propensity to consume increases.
(C) value of the marginal propensity to consume decreases.
(D) value of the marginal propensity to save increases.
(E) value of the average propensity to consume decreases.
5. If the government spending multiplier is 5 in a country, the value of the tax multiplier must be
(A) 5
(B) 4
(C) 1
(D) –4
(E) –5
6. A country has the following values for income and consumption. Use table no1 to answer questions 6 ,
7 and 8.Use Table No. 1
Income Consumption
100 150
200 225
300 300
400 375
500 450
600 525
The government spending multiplier in a country is

(A) 3
(B) 4
(C) 5
(D) 10
(E) 30
7. Use Table No. 1 Table No1.

Income Consumption
100 150
200 225
300 300
400 375
500 450
600 525
If there is an increase in taxes of $200 in a country, the decrease in GDP will be
(A) $100
(B) $200
(C) $400
(D) $600
(E) $800
8. Use table no. 1.If there is an increase in government spending of $100 and an increase in taxes of $100
in a country, then the change in GDP will be
(A) $50
(B) $100
(C) $200
(D) –$100
(E) –$200
Table No1.
Income Consumption
100 150
200 225
300 300
400 375
500 450
600 525
10 . Would the multiplier be larger or smaller if you saved more of your additional income?
11. What do you think would happen if all people in a country saved all of the change in their incomes?
12. What would happen if you spent all of the change in your income?
Figure 1
Changes in APC and MPC as DI Increases
Disposable Consumptio Savings APC APS MPC MPS
income n
$10000 $12000 -$2000
20000 21000 -1000
30000 30000 1.00
40000 1000
50000 48000 2000
60000 57000 3000
70000 66000
13. Complete Figure 1 and answer the questions based on the completed table.
14. What is the APC at a DI level of $10,000? ____________ At $20,000? ____________
15. What happens to the APC as DI rises?
16. What is the MPC as DI goes from $50,000 to $60,000? ___________ From $60,000 to $70,000?
_____________
17. What happens to MPC as income rises?______________ What happens to MPS as income rises?
18. What is the conceptual difference between APC and MPC?
Activity 1
Table 2 : Income-Expenditure Schedule
Total Spending
Income
Income output Consumption Investment Government Total Spending
spending Spending Spending (Aggregate
Expenditure)
$2400 $2500 $300 $100
2600 2600 300 100
2800 2700 300 100
3000 2800 300 100
3200 2900 300 100
3400 3000 300 100
3600 3100 300 100
3800 3200 300 100
1. Use the data given in table 2 on consumption spending and income to draw the consumption function
on the graph . Label the function C.
2. Using the consumption function you have just drawn and the data on investment and government
spending, draw the aggregate expenditure schedule on the same graph. Label it AE (C + I + G).What is
the difference between the aggregate expenditure schedule and the consumption function?
3. Now draw a line representing all the points at which total spending and income could be equal. Label
this the 45° line.
4. The 45° line represents all the points that could be the equilibrium level of total spending. Now circle
the one point that is the equilibrium level of total spending. What is the equilibrium level of total
spending on your graph?
Q20 (i)The economy of Trance (a small country in East Asia) is agriculture-based. The
consumption function of this economy is estimated to be C = 90 + 0.80Y; where C is
consumption function in which Y is income. If Y = 900 for this economy, calculate aggregate
consumption; autonomous consumption; induced consumption, average propensity to consume,
marginal propensity to consume, aggregate saving, autonomous saving; induced saving; average
propensity to save; and marginal propensity to save.
Q21In a three-sector economy, government expenditure is comprised of government purchases

and transfer payments and while tax is a function of income. This economy is characterized by
following equations:
C = 200 + 0.80Yd where C is consumption and Yd is disposable income;
Investment (I) = 120
Government purchases (G) = 100
Transfer payments (R) = 20
T = 20 + 0.25Y where T is tax and Y is income
Find out equilibrium income (value).
Find out government budget surplus/deficit (value) at the equilibrium income.

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Worksheet 1

National Income determination in Closed Economy

1.What is the value of the tax multiplier if the MPC is 0.80?

3. What is the tax multiplier if the MPS is 0.25?

The government spending multiplier in a country is

7. Use Table No. 1 Table No1.

18. What is the conceptual difference between APC and MPC?

Table 2 : Income-Expenditure Schedule

Q21In a three-sector economy, government expenditure is comprised of government purchases

Investment (I) = 120

Government purchases (G) = 100

Transfer payments (R) = 20

T = 20 + 0.25Y where T is tax and Y is income

Find out equilibrium income (value).

Find out government budget surplus/deficit (value) at the equilibrium income.

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