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| Income ( RM Million) | Consumption ( RM million) | Saving (RM million) |
| 200 | 150 | 50 |
| 400 | 250 | 150 |
| 600 | 350 | 250 |
| 800 | 450 | 350 |
| 1000 | 550 | 450 |
Clone Q for MACROECONOMICS mid-term test
Clone 1.
1. Define autonomous consumption and marginal propensity to save and find their values (4m)
For this question, you have to understand what the autonomous is and what the marginal propensity propensity to save is.
Autonomous consumption can be defined as consumption that does not depend on the level of income. It occurs when level of income ZERO. For instance, necessity goods (barang keperluan). It does not depend on your income right because it is needed by human.
Marginal propensity to save is defined the relationship between
∆saving / ∆income
What about their value for both autonomous Consumption and MPS
To find the autonomous consumption, first you have to find the value of MPC by using the schedule given above
USING THE LINEAR EQUATION TO FIND C function
C = a + bYd
150 = a + 200b---(1)
250 = a + 400b---(2)
(2) – (1)
100 = 200b
B = 100 / 200
=0.5
Therefore, we find the value of MPC= 0.5
Second step we can find the autonomous consumption by using MPC formula
MPC = ∆consumption / ∆income
0.5 = 150 – X / 200 – 0
0.5 x 200 = 150 – X
100 = 150 – X
-X = 100 – 150
X = 50
Thus the value of autonomous consumption is 50
To find the MPS
As we are already know that the relationship between MPC and MPS, the higher MPC, the lower of MPS and vice versa
MPC + MPS = 1
0.5 + MPS = 1
MPS= 1 – 0.5
Hence the value of MPS is 0.5
2. Find the consumption function, saving function, autonomous consumption by using the schedule above.(6m)
From the question 1, we found that MPS = 0.5, MPC = 0.5 and autonomous consumption 50
Therefore we can easily to find the C function and S function
Consumption function, C = a + bYd
C = 50 + o.5Yd
Saving function, S = -a + (1-b)Yd
S = -50 + 0.5Yd
Autonomous consumption = 50
3. . Briefly explain about Break even income. (2m)
Break even income occurs at level which all of income are fully spent by household, so saving is equal ZERO
At breakeven income point:
Y=C
S=0
APC = 1
APS = 0
Clone 2
| Items | RM (million) |
| Public investment | 100 |
| Private @ corporate investment | 200 |
| Net factor paid from abroad | 300 |
| Changes in inventory | 400 |
| Public expenditure | 500 |
| Private expenditure | 600 |
| Net property received from abroad | 700 |
| Capital consumption | 800 |
| Exports | 900 |
| Imports | 1000 |
| Rental payment | 1100 |
| Services taxes | 1200 |
| Exercises duties | 1300 |
| Companies income taxes | 1400 |
| Petroleum income taxes | 1500 |
| Government subsidies | 1600 |
Based on information above, enumerate the
A) Gross domestic product at market price
According to the data, it is expenditure approach to calculate national income
Due to al the expenditure on goods and services have shown above
GDPmp= C + I + G + ∆ in inventory +( x – m)
= 600 + 200 + 500 + 400 + ( 900 – 1000)
=RM1,600m
B) Gross national product at factor cost
GDPfc= GDPmp + subsidies - indirect taxes[1]
GDPfc= RM1,600m +RM1,600m +1,300m +1,200m
=RM700m
C) National income
GNPfc= GDPfc + net factor income from abroad
=RM700m + (700 – 300)
=RM700m + RM400m
=RM1,100
National income = GNPfc – depreciation
=RM1,100 – 800m
=RM300m
Clone 3.
| Items | Country A | Country B |
| Consumption Fuction | C = 200 + 0.40Yd | C=200 + 0.40Yd |
| Government spending | G = 100 | G = 200 |
| Investment | I = 200 | I = 300 |
| taxation | T= 50 | T= 0.1Y |
a. Calculate the tax multiplier for both countries.
Country A
Kt = ∆Y / ∆ in taxes
Kt = -MPC / MPS
Kt = -0.40 / 0.60
Kt = -.0.67
County B
Kt = ∆Y / ∆ in taxes
MPC = 0.40 ( Y – 0.1Y)
o.40 (0.9)
= 0.36
Therefore, the new MPC is 0.36[2]
Kt = -MPC / MPS
Kt = -0.36 / 0.64
Kt = -.0.56
b. Calculate the equilibrium income in the country A and country B
Using AS= AD approach to find the E income for both contry
Country A
AS=Y
Y= C + I + G
Y= 200 + 0.40Yd + 200 + 100
Y = 200 + 0.4 (Y – 50) +300
Y= 500+0.4Y – 20
Y – 0.4Y = 480
0.6Y= 480
Y = 480 / 0.6= 800
Country B
AS=Y
Y= C + I + G
Y= 200 + 0.40Yd + 300 + 200
Y = 200 + 0.4 (Y – 0.1Y) +500
Y= 700+0.4 (0.9Y)
Y= 700 + 0.36Y
Y – 0.36Y = 700
0.64Y= 700
Y = 700/ 0.64
Y= 1093.75
c. If the government in country A increase their G expenditure by RM7million, what will be the new equilibrium level of national income for the country A?
Kg =∆Y / ∆ in G
1 / (1 – MPC) = ∆Y / 7m
1 / ( 1- 0.40 ) = ∆Y / 7m
1.67 = ∆Y / 7m
1.67 X 7 = ∆Y
∆Y = 11.69
Therefore new equilibrium Y level = Y + ∆Y
= 800 + 11.69
=RM811.69
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