An economy is currently in equilibrium. The following figures, in billions, refer to elements in its national income accounts:
Consumption (total): £25
Government expenditure: £5
A)Current equilibirum level of national income?
b)Level of injections
c)level of withdrawls
D)Assume the level of saving is £5 billion. What is the level of tax revenue?
e) If national income now rises to £60billion and, as a result, the consumption of domestically produced goods rises to £30 billion, what is the marginal propensity to save?
F)f) What is the value of the multiplier?
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- Thread Starter
- 13-01-2015 22:09
- 14-01-2015 00:29
a) so Y(national income)= C + I + G +(N-X)
=25 + 5 +5 + (10-5)
=40 billion pounds
b)injections= investment, gov spending, exports= 20 billion pounds
c)withdrawals= imports, tax, savings ( you only show imports so I'm assuming) 5 billion pounds
NB net injection is injections-withdrawals= 15 billion pounds
d) unsure, i don't think i understand this one
e) so income rises by 20 billion, and consumption by 5 billion, so mpc (consume) = 5/20=0.25
thus mps (save) = 1-0.25= 0.75
f) multiplier = 1/1-c (c being mpc)
= 1.333 (4/3)
hope this helps, give some rep if you think it did!Last edited by gozzabomb; 14-01-2015 at 00:30. Reason: extra info