ABBE2823

MATHEMATICS FOR
ECONOMICS
TUTORIAL 4 Q2-Q11
POON ZI QIAN TEH SHI KHOO MIN XUAN EU HUI
JIA SHUEN
CHONG SHIN JIE LIM SI
PING
2. Find the equilibrium level of income if the consumption is 𝑪 = 𝟎. 𝟖𝒀 + 𝟐𝟓 and
investment 𝑰 = 𝟏𝟕. Calculate the new equilibrium income if investment rises by one unit.

Y=C+I
Substitute C=0.8Y+25 and I=17 into the equation:
Y=0.8Y+25+17
0.2Y=42
Y=RM210
Substitutes Y into C=0.8Y+25
C=0.8(210)+25
C=RM193

New equilibrium income is RM193.

3. Given that:
Government expenditure; G=40 Investment, I=55
Consumption, C=0.8Yd+70 Tax, T=0.1Y+25
Calculate the equilibrium level of national income.
Y=C+I+G Substitute C=0.72Y+50 into the equation:
Substitute G=40 and I=55 into the equation: Y=C+95
Y=C+55+40 Y=0.72Y+50+95
Y=C+95 Y-0.72Y=50+95
Substitute T=0.1Y+25 into Yd=Y-T: 0.28Y=145
Yd=Y-T Y=RM518
=Y-0.1Y-25 The equilibrium level of national income
=0.9Y-25 is RM518.
Substitute Yd=0.9Y-25 into the equation:
C=0.8(0.9Y-25)+70
=0.72Y-20+70
=0.72Y+50
4. If the consumption function is given by C=0.7Y+40, state the values of
a) Autonomous consumption
b) Marginal propensity to consume (MPC). Interpret your answer.
c) Marginal propensity to save (MPS).
d) Explain briefly why MPC+MPS=1

C=0.7Y+40 c) MPS=1-MPC
=1-0.7
a) Autonomous =0.3
b) Marginal propensity to consumption d) MPS is opposite of MPC so
consume (MPC) MPC+MPS=1 since an increase
For every RM of income, in one unit of income will be
70% is consumed either consumed or saved.
5. Write down expression for the savings function given that the
consumption function is
a) 𝑪 = 𝟎. 𝟗𝒚 + 𝟕𝟐
𝒀𝟐 +𝟓𝟎𝟎
b) 𝑪 =
𝒀+𝟏𝟎

𝑌 2 +500
a) S=Y-C b) 𝐶 =
𝑌+10
(𝑌+50)(𝑌+10)
=Y-(0.9Y+72) 
𝑌+10
=Y-0.9Y-72  𝑌 + 50
=0.1Y-72 𝑆 =𝑌−𝐶
= 𝑌 − (𝑌 + 50)
= −𝑅𝑀50
6. For a closed economy with no government intervention, the consumption function is
𝑪 = 𝟎. 𝟔𝒀 + 𝟑𝟎 and investment, I=100
Calculate the equilibrium level of
a) National income
b) Consumption
c) Savings

a) Y=C+I b) C=0.6Y+30 c) Y=C+S

Y=0.6Y+30+100 C=0.6(325)+30 C=0.6Y+30
Y-0.6Y=30+100 C=RM225 Y=0.6Y+30+5
0.4Y=130 S=0.4Y-30
Y=RM325 Y=325
S=0.4(325)-30
S=RM100
7. An open economy is in equilibrium when 𝒀 = 𝑪 + 𝑰 + 𝑮 + 𝑿 − 𝑴; where
Y= national income G= government expenditure
C= consumption X= exports
I= investment M= imports
Determine the equilibrium level of income given that
𝐚) 𝑪 = 𝟎. 𝟔𝒀 + 𝟔𝟓 I=45 G=125 𝑿 = 𝟎. 𝟑𝒀 + 𝟐𝟓 M=70
𝒃) 𝑪 = 𝟎. 𝟓𝒀𝒅 + 𝟔𝟎 I=55 G=85 𝑿 = 𝟎. 𝟐𝒀 + 𝟑𝟎 M=150 𝑻 = 𝟎. 𝟐𝒀 + 𝟓𝟎

a) Y=C+I+G+X-M b) Y=C+I+G C=0.5(0.8Y-50)+60

Y=0.6Y+65+45+125+0.3Y+25-70 Y=C+55+85 =0.4Y-25+60
Y-0.6Y-0.3Y=65+45+125+25-70 Y=C+140 =0.4Y+35
0.1Y=190
Y=RM1900 Yd=Y-T Y=C+140
Yd=Y-(0.2Y+50) =0.4Y+35+140
=Y-0.2Y-50 Y-0.4Y=35+140
=0.8Y-50 0.6Y=175
Y=RM292
8. Given that 𝑪 = 𝟎. 𝟖𝒀 + 𝟔𝟎, determine
a) The savings function;
b) MPC and MPS,
c) Multiplier, m

a) Saving function b)MPC=0.8 c) Multiplier, m

Y=C+S MPC+MPS=1 M=1/MPS
Y=0.8Y+60+S MPS=1-0.8 =1/0.2
S=0.2Y-60 MPS=0.2 =5 times
9. Given: Consumption (C) =320+0.65Y
Investment (I) =RM 1400 billion
Government Purchases (G) =RM 150 billion
Export (X) =RM 84 billion
Import (M) =RM 120 billion
Where Y=income (in RM billion)
i) Calculate the equilibrium level of national income.
ii) Using the result obtained from (b)(i), calculate the level of consumption.
iii) Find the marginal propensity to save (MPS) and interpret the value.

i) Y=C+I+G+X-M ii) C=320+0.65(5240)

Y=320+0.65Y+1400+150+84-120 C=RM3726 billion
Y-0.65Y=320+1400+150+84-120
0.35Y=1834 iii) MPS=1-MPC
Y=RM5240 billion MPS=1-0.65
=0.35
For every RM billion income increase,
35% will be saved.
10. Given: Consumption (C) =420+0.85Y
Investment (I) =RM 130 billion
Government Purchases (G) =RM 310 billion
Export (X) =RM 90 billion
Import (M) =RM 605 billion
Where Y=income (in RM billion)
i) Calculate the equilibrium level of national income.
ii) Using the result obtained from (b)(i), calculate the level of consumption.
iii) Find the marginal propensity to consume (MPC) and interpret the value.

i) Y=C+I+G+X-M ii) C=420+0.85Y

Y=420+0.85Y+130+310+90-605 C=420+0.85(2300)
Y-0.85Y=420+130+310+90-605 C=RM2375 billion
0.15Y=345 iii) MPC=0.85
Y=RM2300 billion For every RM of income, 85%
will be consumed
11. The data for an open economy are as follow:
Saving =0.2Yd-2110 million Investment =380 million
Government purchase = 320 million Export =540 million
Import =480 million
Where Yd=disposable income
i) Calculate the national income for this open economy.
ii) If the government imposes tax of 50+0.1Y on consumes, compute the new national income
for this economy.

i) Y=C+I+G+X-M ii) Tax=50+0.1Y C=0.8(0.9Y-50)+2110

S=0.2Yd-2110 Y=C+I+G+X-M =0.72Y+2070
Yd=C+S Y=C+381+320+540-480 Y=C+760
Yd=C+0.2Yd-2110 Y=C+760 Y=0.72Y+2070+760
Yd-0.2Yd=C-2110 Yd=Y-T Y-0.72Y=2070+760
0.8Yd=C-2110 Yd=Y-(50+0.1Y) 0.28Y=2830
C=0.8Yd+2110 =Y-50-0.1Y Y=RM10107 million
Y=C+I+G+X-M =0.9Y-50
Y=0.8Yd+2110+380+320+540-480