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1. Suppose the following information describes a simple economy. Figures are in billion of dollars. Disposable personal Consumption income 0 100 100
What is the marginal propensity to consume?
What is the marginal propensity to save?
Write an equation that describes consumption.
Write an equation that describes saving.
2. The graph below shows a consumption function.
When disposable personal income is equal to zero, how much is consumption?
When disposable personal income is equal to $4,000 billion, how much is consumption?
At what level of personal disposable income are consumption and disposable personal income equal?
How much is personal saving when consumption is $2,500 billion?
How much is personal saving when consumption is $5,000 billion?
What is the marginal propensity to consume?
What is the marginal propensity to save?
Draw the saving function implied by the consumption function above.
3. For the purpose of this exercise, assume that the consumption function is given by C = $500 billion + 0.8Yd. Construct a consumption and saving table showing how income is divided between consumption and personal saving when disposable personal income (in billions) is $0, $500, $1,000, $1,500, $2,000, $2,500, $3,000, and $3,500.
Graph your results, placing disposable personal income on the horizontal axis and consumption on the vertical axis.
What is the value of the marginal propensity to consume?
- What is the value of the marginal propensity to save?
