1 Refer to the accompanying consumption schedule The margina

1.

Refer to the accompanying consumption schedule. The marginal propensity to consume is

0.80.

0.20.

0.75.

0.60.

2. Complete the accompanying table and answer the question on the basis of the resulting data. All figures are in billions of dollars. For the open economy, the equilibrium GDP and the multiplier are

Domestic Output (GDP=DI)

Aggregate Expenditures, Closed Economy

Exports

Imports

Net Exports

Aggregate Expenditures, Open Economy

$200

$230

$30

$20

$--------

$--------

250

270

30

20

--------

--------

300

310

30

20

--------

--------

350

350

30

20

--------

--------

400

390

30

20

--------

--------

450

430

30

20

--------

--------

500

470

30

20

--------

--------

Disposable Income	Consumption
$10,000	$12,000
18,000	18,000
26,000	24,000
34,000	30,000
42,000	36,000
50,000	42,000

Solution

1. Option 3. 0.75

Explanation: Marginal propensity to consume = change in consumption/change in income.

From the table, we can see that for every $8,000 increase in disposable income, consumption increases by $6,000.

So, the marginal propensity to consume = change in consumption/change in income = $6,000/$8,000 = 0.75.