Find the average propensity to consume level (APC). Provide an economic interpretation of this level from the world bank view. Suppose the import equation is 𝑴 = 𝜸𝟎 + 𝜸𝟏 ∗ 𝒀 where (𝜸𝟎, 𝜸𝟏) are constants to be estimated. Find (𝜸𝟎, 𝜸𝟏).

Capstone Term Project Report

TASKS
For all the tasks below only use quarterly or yearly data for at least 30 years from ASIA’S REGION ONLY (GCC region is excluded).

1.1 (1 mark) Use real (or constant prices) household Consumption (C) and your data on real GDP (Y). Plot on the same diagram the 45–degree line (it is also called the real GDP line, Y) along with the consumption curve (call this Figure 1): 𝑪 = 𝒂 + 𝒃 ∗ 𝒀  where (a, b) are constants to be estimated.

HINTS: The frequency of the data for C, and Y must be the same (e.g., quarterly or yearly), and that you need to use constant prices of the same year for both variables (e.g., Consumption and GDP, at constant prices of 2005, or 100=2005, or any other year available).

1.2 (1.5 marks) Find the average propensity to consume level (APC). Provide an economic interpretation of this level from the world bank view.

2. (1.5 marks) On a new diagram (call this Figure 2), find the private saving equation and graph (assume Tax = 0).

3. (1 mark) Suppose the import equation is 𝑴 = 𝜸𝟎 + 𝜸𝟏 ∗ 𝒀 where (𝜸𝟎, 𝜸𝟏) are constants to be estimated. Find (𝜸𝟎, 𝜸𝟏).

4. (1 mark) Assume anything else is constant, define and compute the multiplier (K) for the chosen economy given that 𝑌 = 𝐶 – 𝑀