a) To find the marginal propensity to consume (MPC) and the marginal propensity to save (MPS) in the given consumption function C = 1.5 + 0.75(Y-T), you need to understand that MPC represents the change in consumption for a given change in income, while MPS represents the change in savings for a given change in income.
In this case, the coefficient of (Y-T) in the consumption function is 0.75, which indicates that for every additional unit of income (Y) minus taxes (T), consumption (C) will increase by 0.75 units. Therefore, the marginal propensity to consume (MPC) is 0.75.
To find the marginal propensity to save (MPS), you subtract the MPC from 1, since MPS represents the portion of income that is saved. So, MPS = 1 - MPC = 1 - 0.75 = 0.25. Therefore, your understanding is correct - MPC = 0.75 and MPS = 0.25.
b) Similarly, for the trade balance function TB = 5(1-[1/E])-0.25(Y-8), you need to find the marginal propensity to consume foreign goods (MPCF) and the marginal propensity to consume home goods (MPCH).
To find the MPCF, you need to look for the coefficient of the term (1-[1/E]) in the trade balance function. Similarly, to find MPCH, look for the coefficient of (Y-8). Once you identify these coefficients, you will have the values for MPCF and MPCH.
c) In the investment function I = 2-10i, you are given the interest rate (i) as 0.10, which represents 10%. To find the investment (I) for this interest rate, substitute the value of i into the equation and solve for I.
I = 2 - 10(0.1)
I = 2 - 1
I = 1
Therefore, the investment when the interest rate is 0.10 is 1.
d) To write down the expression for D, which represents the sum of the four components of demand (consumption, investment, government spending, and net exports), you need to combine the relevant equations for each component.
For example, if the consumption function is C = 1.5 + 0.75(Y-T), the investment function is I = 2-10i, and the government spending is G, you would express D as:
D = C + I + G + TB
Here, TB represents the trade balance function, which you can substitute into the equation.
e) In the forex market equilibrium equation i = ([1/E]-1)+0.10, you are asked to find the foreign interest rate and the expected future exchange rate.
To find the foreign interest rate, you simply evaluate the equation since the value of i is not given. Once you solve the equation, the resulting value of i will be the foreign interest rate.
To find the expected future exchange rate, you need additional information. The equation you provided does not directly give the expected future exchange rate, so you would need to use additional data or information to calculate it.