Problem 1 [Consumption, Savings, APC, APS, MPC, MPS, ATR, MTR ]The Bureau of Economic Analysis (BEA) has provided you with the following data regarding the United States households:

[all amounts are in billions of dollars, rounded]	1999	2000
Personal income [including taxes]	7,787	8,407
Personal saving	174	202
Personal consumption expenditure on durable goods	756	804
Personal consumption expenditure on nondurable goods	1,830	1,973
Personal consumption expenditure on services	3,661	3,907

• Based on the data above, how much was total consumption (C) for 1999 and 2000?
• Based on the data above, how much were total taxes for 1999 and 2000?
• Based on the above, how much was the average tax rate (ATR) for 1999 and 2000?
• Based on the above, how much was the marginal tax rate (MTR) for 2000?
• Based on the above, how much was the average propensity to consume (APC) for 1999?
• Based on the above, how much was the marginal propensity to consume (MPC) for 2000?
• Based on the above, how much was the average propensity to save (APS) for 2000?
• Based on the data above and your general knowledge of economic, estimate the GDP for the year 2000.

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Problem 2 [Investments, EPR ]

Your firm is presented with the following data:

You can borrow $100,000 at 10% for 1 year to purchase inventory. The inventory is virtually certain to be sold for $140,000

Total selling costs (advertising, salaries etc) will be $25,000

Interest costs on the funds borrowed would also have to be a factor when computing profit.

• How much is the expected profit from the above transaction?
• What is the expected profit rate (EPR)?
• Would you recommend that this investment be undertaken? Why or why not?
• Would your recommendation change if you did not have to borrow the money? Why or why not?

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Problem 3 [Calculating Total Investments ]

You are presented with the following data for an economy for 2002:

Inventory levels:

Jan 1 . . . . . $60 billion

July 1. . . . . 55 billion

Dec 31 . . . . 70 billion

Expenditures on new plant & equipment during 2002 . . . . . . . $120 billion

Expenditures on new residential housing during 2002. . . . . . . $ 90 billion

Depreciation on plant & equipment and residential housing . . . $30 billion

• Based on the data above, calculate gross investment (G).
• Based on the above, calculate net investment (NI).

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Problem 4 [Using Formulas to calculate consumption ]

Total consumption (C) is represented by the following formula: a + MPC (Yd), where ‘a’ represents autonomous consumption, MPC represents the marginal propensity to consume, and Yd represents disposable income. The following information is provided regarding the Island of Kamara and the Island of Molina

Island of Kamara; autonomous consumption = $400; MPS = 0.40 and Y_d = $6,000. Island of Molina: autonomous consumption = $400; MPS = 0.20 and Y_d = $6,000.

• What is total consumption (C) for the Island of Kamara?
• What is total consumption (C) for the Island of Molina?
• Based on the data above, along with your calculation, what conclusions, if any, can you make about the impact of MPC on consumption?

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Problem 5 [Economic Principles ]

Students at The University obtained students loans totaling $3,000,000. The students used $2,900,000 of that money to pay for tuition. The remaining $100,000 was used to purchase textbooks. The University used $1,000,000 from the money received from students to purchase new computers for the University's computer labs and new furniture for the Student Lounge.

• Identify the 3 major markets, if any, from the Circular Flow Model, involved in the transactions above.
• Clearly identify the transaction [s] and amount [s] involved in each market.
• Indicate the dollar amount of the impact, if any, on Consumption [C] and Investments [I].