Marginal Propensity to Consume Calculation
Injections and Withdrawals
The first part of the calculation was to determine the size of the injections and withdrawals in the economy. The injection figures came from the random number generator in the Excel program. According to the Circular Flow of Income, in a closed economy, injections always equal withdrawals. Therefore, the withdrawals equal the injections.
Aggregate Expenditure
According to Keynesian macroeconomics, aggregate expenditure is the sum of income, consumption and injections, less withdrawals. This was the method used to calculate this variable. The formula is shown below:
E= (Y+CD+J) – W
MPC Calculation
The Marginal Propensity to Consume (MPC) is defined as the proportion of every extra unit of income received that is spent on consumption. It is calculated by dividing the change in consumption from one year to the next by the change in income.
MPC = dC Change in Consumption
dY Change in Income
In Excel, the MPC was calculated as 0.73, meaning that €0.73 of every extra €1 received is spent on consumption.
Equilibrium Level of Income
At equilibrium, income and aggregate expenditure are equal. Therefore, in order to find this level of income, one adjusts the withdrawals figure until income equals aggregate expenditure.
Injections and Withdrawals
The first part of the calculation was to determine the size of the injections and withdrawals in the economy. The injection figures came from the random number generator in the Excel program. According to the Circular Flow of Income, in a closed economy, injections always equal withdrawals. Therefore, the withdrawals equal the injections.
Aggregate Expenditure
According to Keynesian macroeconomics, aggregate expenditure is the sum of income, consumption and injections, less withdrawals. This was the method used to calculate this variable. The formula is shown below:
E= (Y+CD+J) – W
MPC Calculation
The Marginal Propensity to Consume (MPC) is defined as the proportion of every extra unit of income received that is spent on consumption. It is calculated by dividing the change in consumption from one year to the next by the change in income.
MPC = dC Change in Consumption
dY Change in Income
In Excel, the MPC was calculated as 0.73, meaning that €0.73 of every extra €1 received is spent on consumption.
Equilibrium Level of Income
At equilibrium, income and aggregate expenditure are equal. Therefore, in order to find this level of income, one adjusts the withdrawals figure until income equals aggregate expenditure.
1 comment:
Excellent. I'm almost tempted to award it a never-before awarded "awesome to the max" grade, but I'm afraid you'll get complacent and egotistical if I do.
S
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