Ces
Real GDP, consumption, and the marginal propensity to consume (MPC) for five hypothetical countries are shown in the following table.
Use the table to answer the questions below.
Country
A
B
C
D
E
Real GDP,
Billions
$40
50
70
100
180
Consumption,
Billions
$24
40
82
100
204
MPC
0.75
0.80
0.90
0.95
0.75
Current Level
of Saving,
Billions
$
$
$
$
$
16
10
-12
0
-24
New Level of
Saving,
Billions
Instructions: Enter your answers as a whole number. If you are entering any negative numbers be sure to include a negative sign (-) in
front of those numbers.
a. Enter the current level of saving in the appropriate column in the table.
b. Suppose that GDP increases by $20 billion in each of the five countries. What will be the new level of saving in each country? Enter
your answers in the appropriate column in the table.
a. Current Level of Saving, Billions:
Country A: 16
Country B: 10
Country C: -12
Country D: 0
Country E: -24
b. New Level of Saving, Billions:
Country A: 36
Country B: 30
Country C: 18
Country D: 20
Country E: -4
To answer this question, we need to understand the relationship between consumption, saving, and GDP. The formula is:
GDP = Consumption + Saving
a. To find the current level of saving in each country, we need to subtract consumption from GDP. Let's calculate the current level of saving for each country:
In Country A:
Current Level of Saving = GDP - Consumption
= $40 - $24
= $16
In Country B:
Current Level of Saving = GDP - Consumption
= $50 - $40
= $10
In Country C:
Current Level of Saving = GDP - Consumption
= $70 - $82
= -$12
In Country D:
Current Level of Saving = GDP - Consumption
= $100 - $100
= $0
In Country E:
Current Level of Saving = GDP - Consumption
= $180 - $204
= -$24
b. Now, let's calculate the new level of saving in each country after a $20 billion increase in GDP:
In Country A:
New Level of Saving = (GDP + $20) - Consumption
= ($40 + $20) - $24
= $36
In Country B:
New Level of Saving = (GDP + $20) - Consumption
= ($50 + $20) - $40
= $30
In Country C:
New Level of Saving = (GDP + $20) - Consumption
= ($70 + $20) - $82
= $8
In Country D:
New Level of Saving = (GDP + $20) - Consumption
= ($100 + $20) - $100
= $20
In Country E:
New Level of Saving = (GDP + $20) - Consumption
= ($180 + $20) - $204
= -$4
Now, let's update the table with the current and new levels of saving:
Country | Real GDP, Billions | Consumption, Billions | MPC | Current Level of Saving, Billions | New Level of Saving, Billions
--------------------------------------------------------------------------------
A | $40 | $24 | 0.75 | $16 | $36
B | $50 | $40 | 0.80 | $10 | $30
C | $70 | $82 | 0.90 | -$12 | $8
D | $100 | $100 | 0.95 | $0 | $20
E | $180 | $204 | 0.75 | -$24 | -$4
a. The current level of saving in each country can be calculated by subtracting the consumption from the real GDP.
Country A: $40 billion - $24 billion = $16 billion
Country B: $50 billion - $40 billion = $10 billion
Country C: $70 billion - $82 billion = -$12 billion
Country D: $100 billion - $100 billion = $0 billion
Country E: $180 billion - $204 billion = -$24 billion
So, the current level of saving in each country is as follows:
Country A: $16 billion
Country B: $10 billion
Country C: -$12 billion
Country D: $0 billion
Country E: -$24 billion
b. If GDP increases by $20 billion in each country, we can calculate the new level of saving using the following formula:
New Level of Saving = Current Level of Saving + GDP Increase
Country A: $16 billion + $20 billion = $36 billion
Country B: $10 billion + $20 billion = $30 billion
Country C: -$12 billion + $20 billion = $8 billion
Country D: $0 billion + $20 billion = $20 billion
Country E: -$24 billion + $20 billion = -$4 billion
So, the new level of saving in each country will be:
Country A: $36 billion
Country B: $30 billion
Country C: $8 billion
Country D: $20 billion
Country E: -$4 billion