Answered: Consider the hypothetical country of…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Consider the hypothetical country of Kejimkujik. Suppose that national income in Kejimkujik is $300 billion, households pay $100 billion in taxes, household consumption is equal to $160 billion, and the marginal propensity to consume (MPC) is 0.6.

On the following graph, use the blue line (circle symbol) to plot the economy's consumption function.

Consumption Function050100150200250300350400450500500450400350300250200150100500CONSUMPTION (Billions of dollars)DISPOSABLE INCOME (Billions of dollars)

Suppose now that Kejimkujik’s national income increases to $330 billion. Assuming the amount paid in taxes is fixed at $100 billion and that MPC = 0.6, what is the new amount of household consumption?

$148 billion

$219.4 billion

$220.6 billion

$178 billion

On the following graph, use the blue line (circle symbol) to plot the economy's consumption function.
CONSUMPTION (Billions of dollars)
500
450
400
350
300
250
200
150
100
50
0
0
50
100 150 200 250 300 350 400
DISPOSABLE INCOME (Billions of dollars)
450
500
Consumption Function
?

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