Consider a country with the national income of $30 billion, the amount of taxes paid by households of $12 billion, and household consumption of $16 billion. Suppose that the marginal propensity to consume (MPC) is 0.7. 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 $16 billion. Then, plot the second point when real disposable income rises by $10 billion. REAL CONSUMPTION (Billions of dollars) 50 45 40 35 30 25 20 229 15 5 0 D 5 10 15 20 25 30 35 40 46 REAL DISPOSABLE INCOME (Billions of dollars) 60 Consumption Function

Consider a country with the national income of $30 billion, the amount of taxes paid by households of $12 billion, and household consumption of $16 billion. Suppose that the marginal propensity to consume (MPC) is 0.7. 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 $16 billion. Then, plot the second point when real disposable income rises by $10 billion. REAL CONSUMPTION (Billions of dollars) 50 45 40 35 30 25 20 229 15 5 0 D 5 10 15 20 25 30 35 40 46 REAL DISPOSABLE INCOME (Billions of dollars) 60 Consumption Function

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Suppose now that country's national income increases to $35 billion. Assuming the amount paid in taxes is fixed at $12 billion and MPC = 0.7, what
will be the new household consumption?
$22.3 billion
$21.6 billion
$23.7 billion
$19.5 billion

2. The consumption function
Consider a country with the national income of $30 billion, the amount of taxes paid by households of $12 billion, and household consumption of $16
billion. Suppose that the marginal propensity to consume (MPC) is 0.7.
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 $16 billion. Then, plot the second point when real disposable income rises
by $10 billion.
REAL CONSUMPTION (Billions of dollars)
50
45
40
35
30
25
20
15
10
0
D
5 10 15 20 25 30 35 40
REAL DISPOSABLE INCOME (Billions of dollars)
45
60
Consumption Function

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Need help with this. Thanks! Just for information the point can move left and right and the line can move up and down. When line moves up the point can move to the left only and when the line moves down, the point can move to the right only. I hope that makes sense to you.
Suppose you know the following facts about consumer behavior of Amy in 2019. In a year, Amy spends $10000 on basic household items regardless of how much she is earning. For every dollar of disposable income earned, Amy spends 50% on extra purchases. Amy pays taxes in the amount of $1000, and receives no transfers. Use this information to: Derive Amy’s consumption function in nominal terms. Suppose the price level index in the economy for 2019 is estimated to be P = 2. Rewrite the consumption function in real terms.
If the output level is such that the Y=AE line (45-degree line) is below the aggregate expenditure line, which of the following is true? a Aggregate expenditure is greater than output, so inventories will decrease and output will increase. b Aggregate expenditure is less than output, so inventories will increase and output will decrease. c Aggregate expenditure is less than output, so inventories will decrease and output will increase. d Aggregate expenditure is greater than output, so inventories will increase and output will decrease.
Refer to Table 1. The equation for the aggregate consumption function is C = 200 + 0.3Y. C = -200 + 0.2Y. C = 200 + 0.8Y. C = 200 + 0.75Y.
9
Consider a hypothetical economy in which the marginal propensity to consume (MPC) is 0.50. That is, if disposable income increases by $1, consumption increases by 50c. Suppose further that last year disposable income in the economy was $400 billion and consumption was $350 billion. On the following graph, use the blue line (arcle symbol) to pict this economy's consumption function based on these data. CONSUMPTION (Bions of dollars) ) 700 600 500 400 300 200 100 0 -100 9 100 200 300 400 500 000 DISPOSABLE INCOME (Billions of dollars) 700 000 From the preceding data, you know that the level of savings in the economy last year was 3 economy is billion and the marginal propensity to save in this Suppose that this year, disposable income is projected to be $600 billion. Based on your analysis, you would expect consumption to be 3 billion and savings to be S billion,
a=$250b, I=$500b, G= $350b, MPC=80%; Calculate: the multiplier the equilibrium level of income the equilibrium level of consumption the equilibrium level of saving Now assume that individuals in the aggregate would like to save more. Write a new consumption function that reflects this change. What is your new assumption?