Question

Consider the following.

Government spending = R550

Exports=R330

Autonomous consumption =R280

Autonomous imports =R170

Investment expenditure=R120

Marginal propensity to consume = 0,75

Full employment level of income =R5700


A. Autonomous expenditure is equal to (1)R900 (2)R960 (3)R1040 (4)R1110

B. What is the marginal propensity to save? (1)1 (2)1.60 (3)0.25 (4)0.40

C. What is the value of the multiplier? (1)2 (2)2.50 (3)4 (4)3

D. What is the equilibrium level of income Y*? (1)R5120 (2) R4440 (3)R4400 (4) R5260

Answer 1

A. (4) R1110.

B.(3)0.25

$MPS=1-MPC$

$MPS = 1 - 0.75 = 0.25$

C.(3) 4.

$Multiplier = 1/MPS=1/0.25 = 4$

D. (2,3) R4440

$Y' = Multiplier*Autonomous spending = 4*1110 = 4440.$