January 2, 2023

Class Exercise – Week 09

1. By using following data draw a graph for the Consumption Function and explain it briefly.

Disposable Income Consumption Net Savings

1 9,900 10,000 (100)
2 10,800 10,800 -
3 12,000 11,800 200
4 13,100 12,800 300
5 15,000 14,500 500
2. Calculate the value of MPC and MPS with the help of Formula

Disposable Income Consumption MPC Net Savings MPS

1 9,900 10,000 (100)
2 10,800 10,800 -
3 12,000 11,800 200
4 13,100 12,800 300
5 15,000 14,500 500
3. By using the following data:
- Calculate the values of Cost of borrowing (interest rate), & Annual Net profit for each project
- Briefly describe which projects are profitable at different interest rates.
- Also show graphically the Investment Demand Curve.

Cost per $1500 Annual Net Profit per $1500

Annual Revenue
Total Investment Borrowed at Annual Borrowed at Annual Interest
per $1500
in Project ($, th) Interest rate of: rate of:
invested
14% 8% 14% 8%
A 20 1,950 210 120 1740 1830
B 16 1,050 210 120 840 930
C 10 700 210 120 490 580
D 5 220 210 120 10 100
E 14 190 210 120 -20 70
F 8 130 210 120 -80 10
G 7 100 210 120 -110 -20
H 6 60 210 120 -150 -60
- When interest rate is 14%, projects A – D were profitable
- When interest rate is 8%, projects A – F were profitable

When interest rate is 14%, projects A – D were profitable, and total investment in these projects is 51 th
$.

When interest rate is 8%, projects A – F were profitable, and total investment in these projects is 73 th $.