How much will 200 in new spending change equilibrium income

How much will $200 in new spending change equilibrium income if the marginal propensity to consume is 0.8?

a) $160

b) $400

c) $1,000

d) $1,600

Suppose investment declines by $300. By how much will equilibrium income change if the marginal propensity to consume is 0.8?

a) -$240

b) -$600

c) -$1,500

d) -$2,400

In the figure below, the amount of savings at the equilibrium income is:

a) -$250.

b) $100.

c) $4,000.

d) $4,400.

In the figure below, the amount of consumption at the equilibrium income is:

a) -$250.

b) $100.

c) $4,000.

d) $4,300.

Panel A 5,500 AE = C + 10 5,000 4 4 3 3,000 45° 3,000 3,500 4,000 4,500 5,000 5,500 Income (Y) Panel B 0 3,000 3,50 000 4,500 5,000 5,500 Income (Y) 250-

Solution

1.Chanhe in equilibrium income=multiplier (k)*change in spending

K=1/1-MPC

K=1/1-.8

K=1/.2

K=5

Change in income=5*200=$1000

Answer-C

2.change in income=k*300

K=5

Change in income=5*300=1500

Income will fall by 1500

Answer-C

3.Equilibrium is at e when AD=Y

Respective savings is at e on the lower graph and is equal to $100

Answer-B

4.Consumption at equilibrium income is point f=$4300

Answer-D

Please leave a comment in case of a query.