Hello, I am currently working through the revision guides and it appears that a lot of the questions on module 17 (book5) have questions that use the terms: 1. Marginal propensity to save 2. Marginal propensity to withdraw 3. Marginal propensity to import and maybe one or two more. Looking at the core reading (Module 17 section 4) and the relevant pages in the Economics for Business (p647-651) none of these terms are discussed. My question is two-fold: 1. Is knowledge of these terms required for the exam? 2. Where can I find out about these? (if the answer to 1. is Yes) Thanks in advance to anyone that can help
If it's not in the textbook, then strictly speaking, it's not examinable. However, these terms used to be in the Subject CT7 course, and I can imagine them being referred to in future exams. We can think about these marginal propensities in the following way: Imagine your gross salary went up by £1. What happens to that extra £1? Well first you have to pay tax. Let's imagine that your marginal tax rate is 20%, in which case you'd have to pay £0.20 in tax. The marginal propensity to tax would be 0.2. Next, you might buy some (domestically produced) goods - let's say you spend £0.50 on domestically produced goods. Then the marginal propensity to consume is 0.5. Next you might spend a bit on imported goods - let's say you spend £0.10 on imports. Then the marginal propensity to import is 0.1. You have £0.20 left and so you save this. So the marginal propensity to save is 0.2. Of course, in the examples you'll come across, it won't be your income that increases by £1, it'll be national income, but it's the same idea. You'll note from the above, that if you add up the marginal propensities to tax, consume, import and save, then you get 1. You can also note that saving, taxation and imports are all withdrawals from the circular flow of income, and so the sum of these is the marginal propensity to withdraw. Does that help?
I've been somewhat puzzled by these questions as well... Thanks for the explanations, they are indeed very helpful! But surely, if these terms are not defined in the notes or in the textbook (nor are they explicitly mentioned in the syllabus), then it would be very unfair to expect candidates to know them?
Thanks Anna, You're explanation is really useful and definately clears up the confusion. I would like to echo the centiments of dazed and confused, surely, if this is not in the notes, nor is it a requirment of the syallbus, it CANNOT be questioned in the exam? If it does come up though, I'll be prepared now
Well we've seen by September 2010 Q13 that they might require you to know some of these! Even though these terms aren't defined in the course, I suppose you could argue that you should be able to interpret what they mean by the marginal propensity to (do something). In any case, if you've read (and understood!) these posts, then you should be in a good position to answer these questions now
