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BU 204 Income and Expenditure Template

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Unit 5 - BU204 - MACROECONOMICS
Unit 5 Assignment Template: Income and
Expenditure
Name: Ochuko Ekuke
Course Number and Section Number: BU204 Section Number 01
Date: 2/8/2021
Assignment
This assignment deals with marginal propensity to consume, the multiplier effect and how they
affect the overall economy.
1. Explain how each dollar spent by consumers throughout the economy ultimately comes back
to people in the form of the following:
a. Rent as it relates to natural resources.
Money that is spent on goods and services consumption by household is the income for the
firms. This money will be use by the firms to continue production. They are several ways a firms
spend money in production, this include paying rent to owner of the land of which those firms
get their raw materials. When a firm produce any goods from raw material like oil, trees, coal,
ore, they are paying someone to utilize those land of which those raw materials are coming from.
b. Interest as it relates to loanable funds.
The excess money saved by household through financial institutions are manage by those
financial institution and loan them to businesses that need funds to expand their business. These
loan accrual interest which the business pay to the financial institution and the financial
institution pay interest to household that their money is used as loanable funds.
c. Dividends as it relates to business investment.
Household sometimes invest their excess fund after expenditure to buy share from businesses.
The business uses these funds to expand their production and pay the shareholders dividend from
the profit generated. These dividends are paid to household that invest their savings.
d. Wages and salaries.

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Unit 5 - BU204 - MACROECONOMICS
Businesses needs household to produce their goods and service. The labor that those household
provide, in return get paid as wages and salary for their time and effort in the production of
goods and services.
2. Define marginal propensity to consume (MPC) and the multiplier (M).
Marginal propensity to consume is the proportion of each new dollar that a person on a new
purchase. It measures the proportion of extra income that is spent on consumption.
Multiplier calculate the total impact of how a particular dollar spent in an economy will circulate
throughout the economy.
3. Each term (3 months) the current group of economics students completed a questionnaire as to
how much they would spend on new purchases compared to how much they would save/pay off
bills, if they suddenly and unexpectedly received a check for $1,000. The average MPC is shown
in the table below.
Month in which student poll was taken
Average of students’ responses as MPC
March
0.41
June
0.30
September
0.22
December
0.56
a. What do these MPC’s imply about the students’ thinking over the course of the year?
The marginal propensity to consume implies the spending habits of the students involved in the
questionnaire. If suddenly they received a check of $1,000 their spending in the second quarter
would be more than the third quarter, and more in the first quarter than second quarter, and even
more in the fourth quarter. Their consumption would look like this.
March $1,000 x 0.41 = $410
June $1,000 x 0.30 = $300
September $1,000 x 0.22 = $220
December $1,000 x 0.56 = $560.
b. What is likely happening in the economy during the same period of time?
The students have higher MPC in the month of March and December because it’s holiday
seasons. March being spring break and students may go on vacation, hang out with friends.
December is holiday too and most student travel home to visit relatives and spend more money
for their trip and buy presents for family and friends at this time. Students have lower MPC

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Unit 5 - BU204 - MACROECONOMICS Unit 5 Assignment Template: Income and Expenditure Name: Ochuko Ekuke Course Number and Section Number: Date: 2/8/2021 BU204 Section Number 01 Assignment This assignment deals with marginal propensity to consume, the multiplier effect and how they affect the overall economy. 1. Explain how each dollar spent by consumers throughout the economy ultimately comes back to people in the form of the following: a. Rent as it relates to natural resources. Money that is spent on goods and services consumption by household is the income for the firms. This money will be use by the firms to continue production. They are several ways a firms spend money in production, this include paying rent to owner of the land of which those firms get their raw materials. When a firm produce any goods from raw material like oil, trees, coal, ore, they are paying someone to utiliz ...
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