2. The consumption function Consider a country with the national income of $12 billion, the amount of taxes paid by households of $3 billion, and household consumption of $7 billion. Suppose that the marginal propensity to consume (MPC) is 0.75. On the following graph, use the blue line (circle symbol) to plot the economy's consumption function. Hint: You should plot the first point where household consumption equals $7 billion. Then, plot the second point when real disposable income rises by $4 billion. REAL CONSUMPTION (Billions of dollars) 20 16 16 + 14 12 10 0 0 2 810 10 12 14 16 REAL DISPOSABLE INCOME (Billions of dollars) 46 O $7.75 billion O$9.75 billion 18 20 Suppose now that country's national income increases to $13 billion. Assuming the amount paid in taxes is fixed at $3 billion and MPC = 0.75, what will be the new household consumption? O $7.5 billion O $10.75 billion Consumption Function (?)
2. The consumption function Consider a country with the national income of $12 billion, the amount of taxes paid by households of $3 billion, and household consumption of $7 billion. Suppose that the marginal propensity to consume (MPC) is 0.75. On the following graph, use the blue line (circle symbol) to plot the economy's consumption function. Hint: You should plot the first point where household consumption equals $7 billion. Then, plot the second point when real disposable income rises by $4 billion. REAL CONSUMPTION (Billions of dollars) 20 16 16 + 14 12 10 0 0 2 810 10 12 14 16 REAL DISPOSABLE INCOME (Billions of dollars) 46 O $7.75 billion O$9.75 billion 18 20 Suppose now that country's national income increases to $13 billion. Assuming the amount paid in taxes is fixed at $3 billion and MPC = 0.75, what will be the new household consumption? O $7.5 billion O $10.75 billion Consumption Function (?)
Chapter9: Demand-side Equilibrium: Unemployment Or Inflation?
Section9.A: The Simple Algebra Of Income Determination And The Multiplier
Problem 4TY
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Transcribed Image Text:2. The consumption function
Consider a country with the national income of $12 billion, the amount of taxes paid by households of $3 billion, and household consumption of $7
billion. Suppose that the marginal propensity to consume (MPC) is 0.75.
On the following graph, use the blue line (circle symbol) to plot the economy's consumption function.
Hint: You should plot the first point where household consumption equals $7 billion. Then, plot the second point when real disposable income rises by
$4 billion.
REAL CONSUMPTION (Billions of dollars)
20
18
16 +
14
12
10
0
0
2
4 6 8 10 12 14 16 18 20
REAL DISPOSABLE INCOME (Billions of dollars)
-0
O $7.75 billion
O $9.75 billion
O $7.5 billion
O $10.75 billion
Consumption Function
(?)
Suppose now that country's national income increases to $13 billion. Assuming the amount paid in taxes is fixed at $3 billion and MPC= 0.75, what
will be the new household consumption?
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