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Eco401 Assignment No. 2 solution

Monday, January 17, 2011 Posted In Edit This
“Economics (ECO401)”
Assignment No.02 Marks: 20

Question 01:
The average propensity to consume (APC) and disposable income (Yd) is given in the following table. From this information, calculate the consumption (C), average propensity to save (APS) and marginal propensity to consume (MPC).

APC Yd C APS MPC
1 400 ? ? ---
0.96 520 ? ? ?
0.95 570 ? ? ?
0.92 650 ? ? ?
0.90 710 ? ? ?
Marks = 14 (1 marks for each)

Question 02:
According to Keynes, “saving can be harmful for the economy if everyone starts saving”. Illustrate this concept graphically. Marks = 6

Schedule
Opening Date and Time January 12, 2011 At 12:01 A.M. (Mid-Night)
Due Date and Time January 17, 2011 At 11:59 P.M. (Mid-Night)
..............................................
SOLUTION:


APC
Yd
C
APS
MPC
1
400
400
0
----
0.96
520
499.2
0.04
1.24
0.95
570
541.5
0.05
0.846
0.92
650
598
0.08
0.807
0.90
710
639
0.10
0.683

Formula for use above
C = APC x Yd
APS = 1 – APC
MPC = ΔC / ΔYd

.........


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