Question

consumption function is C = $600 billion + 0.9Y, Instructions: In part a, enter your response rounded to one decimal place. In parts b-d, enter your responses rounded to the nearest whole number. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers. a. What is the MPC? 600 b. How large is autonomous consumption? $ billion c. How much do consumers spend with incomes of $4 trillion? $ billion d. How much do they save? $ billion

Answer 1

A. 0.9.

B. $600,000,000,000.

C. $4,200,000,000,000.

D. 0.1.

Step-by-step explanation:

A. MPC (marginal propensity to consume).

This is a function of income is gotten by dividing the change in consumption by change in income, thus:

∆C/∆Y

The consumption is a function of income:

C = f(Y).

Therefore the answer to A is 0.9.

B. The autonomous consumption is $600,000,000,000

C. When income is $4,000,000,000,000.

C = $600,000,000,000 + 0.9($4,000,000,000,000)

C = $600,000,000,000 + $3,600,000,000,000

C = $4,200,000,000,000

D. MPS + MPC = 1

Therefore:

MPS + 0.9 = 1

MPS = 1 - 0.9

MPS = 0.1