Question

Refer to the table below.

1. Fill in the missing numbers in the table.

2. What is the breakeven level of income in the table? What is the term that economists use for the saving situation shown at the $240 level of income?

3. For each of the following items, indicate whether the value in the table is either constant or variable as income changes: the MPS, the APC, the MPC, the APS.

Short answer

The values of consumption, APC, APS, MPC, and MPS are as follows:

Level of Output and Income (GDP = DI)	Consumption	Saving	APC	APS	MPC	MPS
$240	$244	-$4	1.016	-0.016	0.8	0.2
260	260	0	1	0	0.8	0.2
280	276	4	0.985	0.014	0.8	0.2
300	292	8	0.973	0.026	0.8	0.2
320	308	12	0.962	0.037	0.8	0.2
340	324	16	0.952	0.047	0.8	0.2
360	340	20	0.944	0.055	0.8	0.2
380	356	24	0.936	0.063	0.8	0.2
400	372	28	0.93	0.07	0.8	0.2

The breakeven income is $260. The economists call the saving situation at the $240 income level “dissaving”.

MPS and MPC are constant, while APS and APC are variable.

Step-by-step solution

Calculations for missing values

• Consumption is the amount of income that is not saved. The following formula will help to find the consumption at different levels of income:

C = Y – S

For example, when the income is $260 and savings are $0, the consumption is $260(=260-0). Similarly, you can find the consumption level at each income level (and respective savings) in the table.

• The APC can be calculated in the following manner:

APC = Consumption/Income

For example, once you find the consumption level at each income level, you can divide the consumption amount by income, like when the income is $300, and the consumption is $292, the APC value at this level is 0.973 (=292/300).

• The formula for APS is given below:

APS = Saving/Income

For example, when the income is $300 and the saving is $8, the APS value at this level is 0.026 (=8/300).

• The values of MPC and MPS can be calculated in the following manner:

MPC = Change in consumption/Change in income

MPS = Change in saving/Change in income

For example, when the income changes from $300 to $320,

• consumption changes from $292 to $308; thus, MPC is 0.8 (=(308-292)/(320-300)).

• saving changes from $8 to $12; thus, the MPS is 0.2 (=(12-3)/(320-300)).

You can find these values using the formula given above at each level of income as given in the table. Therefore, the values of consumption, APC, APS, MPC, and MPS at different levels of income and savings are as follows:

Level of Output and Income (GDP = DI)	Consumption	Saving	APC	APS	MPC	MPS
$240	$244	-$4	1.016	-0.016	0.8	0.2
260	260	0	1	0	0.8	0.2
280	276	4	0.985	0.014	0.8	0.2
300	292	8	0.973	0.026	0.8	0.2
320	308	12	0.962	0.037	0.8	0.2
340	324	16	0.952	0.047	0.8	0.2
360	340	20	0.944	0.055	0.8	0.2
380	356	24	0.936	0.063	0.8	0.2
400	372	28	0.93	0.07	0.8	0.2

Breakeven point and saving at $240 of income

The breakeven level of income is the level when the economy consumes the entire income and saving is zero. The breakeven income in the given data is $260.

The saving at $240 is -$4. Since the saving is negative, it indicates that the saving is less than zero income. When there is no income, consumption does not go below an autonomous level. To consume a minimum output without income, individuals either exhaust their previous savings or borrow the money. This situation is called dissaving.

Variable and constant measurements

Since income, consumption, and savings are increasing at a constant rate, the MPC and MPS are constant. However, the fraction of consumption to income is not the same each time. APC is positive but decreasing. Since APC is declining, APS is rising equally because APC and APS together exhaust the total income.