Tutorial sheet 3

THE UNIVERSITY OF THE WEST INDIES
FACULTY OF SCIENCE AND AGRICULTURE
DEPARTMENT OF AGRICULTURAL ECONOMICS AND EXTENSION
AGBU 1006: MACROECONOMIC FUNDAMENTALS FOR CARIBBEAN AGRICULTURE

TUTORIAL SHEET 3

1. What is the aggregate expenditure function?
2. Distinguish between
a. Induced and Autonomous consumption.
b. The consumption and savings function.
c. The average propensity to consume and the average propensity to save.
d. The marginal propensity to consume and the marginal propensity to save.

3. How are consumption and savings related?
4. Fill in the blanks in the following table.
INCOME

CONSUMPTION SAVINGS

$1000

$400

2000

900

3000

$1400

4000

MPC

MPS

APC

APS
.6

1100
.5
2100

5. What is the level of saving if:
a. Disposable income is $500 and consumption is $450.
b. Disposable income is $1200 and the APS is .90
c. The MPC is .9, disposable income rises from $800 to $900, and saving was originally $120 when income equals $800.
6. What is the marginal propensity to consume if:
a. Consumption increases by $75 when disposable income rises by $100.
b. Consumption falls by $50 when disposable income falls by $100.
c. Savings equal $20 when disposable income equals $100 and savings equal $40 when disposable income equals $300.
7. Assume that the consumption function is C =$200 + .8 Y.
a. What is the amount of autonomous consumption?
b. What is the marginal propensity to consume?
c. What would consumption be when real GDP is $1000?