Explore BrainMass
Share

Explore BrainMass

    effect of changing the savings rate on consumption

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Dear OTA:

    Please try to do the following for me. There is an attachment to this that has the info needed to answer these questions. I sincerely appreciate your help as I cannot calculate this information out. :-(
    ? Identify and describe the effect of changing the savings rate on consumption.
    ? Calculate the marginal propensity to consume after the change in the rate of savings.
    ? Calculate and describe the effect of changing the savings rate on the multiplier.
    ? Describe the likely changes to consumption and equilibrium GDP due to a decline in the savings rate.

    © BrainMass Inc. brainmass.com October 9, 2019, 8:57 pm ad1c9bdddf
    https://brainmass.com/economics/exchange-rates/167740

    Attachments

    Solution Preview

    · Identify and describe the effect of changing the savings rate on consumption.
    Let's start with the GDP function:
    Y = C + I + G + NX
    i.e., GDP = Consumption + Investment + Government + Net Export

    At the equilibrium, GDP = total income, then the relationship between the total income and consumption is:
    C = b * disposable income = b (Y - Tax)
    where b = marginal propensity to consume (MPC) = 1 - marginal propensity to save = 1 - MPS

    C = (1 - MPS) (Y - ...

    Solution Summary

    The effect of changing the savings rate on consumption is denoted.

    $2.19