1. Use the following table with information on the consumption behavior of the people of Gotham to answer the following questions: Disposable Income Consumption $300 $0 $200 $440 a. What is the value of 'a’ or autonomous consumption in this economy? b. What is the value of 'b’ or the Marginal Propensity to Consume (MPC) in this economy? Interpret the meaning of this MPC value in one sentence.
1. Use the following table with information on the consumption behavior of the people of Gotham to answer the following questions: Disposable Income Consumption $300 $0 $200 $440 a. What is the value of 'a’ or autonomous consumption in this economy? b. What is the value of 'b’ or the Marginal Propensity to Consume (MPC) in this economy? Interpret the meaning of this MPC value in one sentence.
Chapter9: Demand-side Equilibrium: Unemployment Or Inflation?
Section: Chapter Questions
Problem 2DQ
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The consumption function (C) , which is the mix of autonomous and non-autonomous consumption, reveals the direct relation between the desired consumption by citizens and the level of disposable earnings. Mathematically, it is written as:
Where:
'a' is the consumption at zero income and 'b' is the value of MPC.
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