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Alexa MelaraBUS218 Professor Keyes Homework 8 Critical Thinking The households consumption and labor supply decisions are interdependent because the household make their consumption decision based on their income

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Alexa MelaraBUS218
Professor Keyes
Homework 8
Critical Thinking
The households consumption and labor supply decisions are interdependent because the household make their consumption decision based on their income. IT is determined by the level of income when increasing which makes the consumption spending increase. If the roles flip it will be income level decreasing and thw level of consumption will also decrease.
The effects that this will have on GDP is that there would be increases and decreases in certain areas. If there successful attempts work than there would be a decrease in consumer spending. There would also be another decrease in income if there is a drop in consumer spending. To reduce the nations debt the households and producers are decreasing spending. This will only make the economy worse probably leaving them with a larger debt.
I believe that the employment rate would stay the same because although people don’t have jobs they are searching for one. This puts them in the category of employment.
a) Residents consumptions function Andre : C=1,000 + 0.7Y
Barbara: C=2,500+0.5Y
Casey : C= 2,000+0.9Y
Declan: C=5,000+0.6Y
Elena :C= 4,000+ 0.75Y
Resident Marginal Propensity Andre: 0.7
Barbara: 0.5
Casey: 0.9
Declan: 0.6
Elena: 0.75
b) Economy’s aggregate consumption function C= 14,500 + 0.69Y
Economy’s marginal propensity 0.69
a) MPS = 0.25 1/ 0.25 = 4
b) MPC= 5/6 1(1-5/6) = 6
c) MPS= 0.125 1/0.125 = 8
d)MPC= 6/7 1/(1-6/7) = 7
e) C = 200+0.85Y 1/(1-0.85) = 15
Contributions, Reflections, Further Engagement
Madeline and I met in the library to work on homework together and talk about the math portion of this homework.
a) the most significant source of personal income are compensation of employees, wages and salaries, and private industry. These relate to the circular flow diagram because it begins at firms then then heads to labor which leads to households which circulate through over again. The sources that are not included in the circular flow diagram are social security, medicare3 and Medicaid.
b) Personal income is higher in all everything by around 2000,money left after taxes is disposable income this is taken from the personal income.
c)2007 9,706.4/ 10,515.6 = 0.92
2012 11,006.8/12,501.2=0.88
2017 13,321.4/ 14,796.3= 0.9
d) As GDP goes up the economy does better and because the economy is doing better the people have more personal income and because they have more personal income they spend more.

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