Homework #5

# Homework #5 - Economics 101-01 Fall 2011 Homework#5 Due...

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Economics 101-01 Fall 2011 Homework #5 Due November 30, 2011 Evelyn Tavares. Chapter 27 Page 559 Questions #5 (all but part c), 7, 9 Chapter 28 Pages 580-581 Questions #2, 8, 9 For Chapter 28 question 2, complete the following parts as well. a. State at the GDP level of \$300 billion, the total amount of actual investment, planned investment and unplanned investment. b. State at the GDP level of \$380 billion, the total amount of actual investment, planned investment and unplanned investment. 5.a Show the consumption and savings schedules graphically Level of output and Income (GDP=DI) Consumptio n Savings APC APS MPC MPS \$240 \$244 \$-4 \$1.02 -0.02 .8 .2 260 260 0 1.00 0.00 .8 .2 280 276 4 0.99 0.01 .8 .2 300 292 8 0.97 0.03 .8 .2 320 308 12 0.96 0.04 .8 .2 340 324 16 0.95 0.05 .8 .2 360 340 20 0.94 0.06 .8 .2

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380 356 24 0.94 0.06 .8 .2 400 372 28 0.93 0.07 .8 .2 b. The break -even level of income is at \$260 where DI=C and S=0. Households dissave by borrowing or using past savings. 7. r=Profit from Investment / Cost of investment * 100 = 50/500*100=10% The expected rate of return is 10%. The publisher will choose to invest in the machine because the interest rate at which funds can be borrowed is lower than expected rate of return, which indicates that the investment is profitable. 9. The multiplier effect is the additional spending by one of the economical actors that allows for additional transactions throughout the economy. The larger the MPC is, the greater the size of the multiplier. The smaller the MPS is, the greater the size of the multiplier. If the level of
investment is increased by \$8 billion and the MPC is .80, there would be a \$40 billion change in

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Homework #5 - Economics 101-01 Fall 2011 Homework#5 Due...

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