Consider the hypothetical country of Kluane. Suppose that national income in Kluane is $30 billion, households pay $10 billion in taxes, household consumption is equal to $18 billion, and the marginal propensity to consume (MPC) is 0.8. On the following graph, use the blue line (circle symbol) to plot the economy's consumption function. CONSUMPTION (Billions of dollars) 50 45 40 + 35 4 30 + 25 20 15 10 5 0 0 5 10 15 20 25 30 35 40 DISPOSABLE INCOME (Billions of dollars) 45 O $21.2 billion 60 -O- Consumption Function Suppose now that Kluane's national income increases to $34 billion. Assuming the amount paid in taxes is fixed at $10 billion and that MPC = 0.8, what is the new amount of household consumption?
Consider the hypothetical country of Kluane. Suppose that national income in Kluane is $30 billion, households pay $10 billion in taxes, household consumption is equal to $18 billion, and the marginal propensity to consume (MPC) is 0.8. On the following graph, use the blue line (circle symbol) to plot the economy's consumption function. CONSUMPTION (Billions of dollars) 50 45 40 + 35 4 30 + 25 20 15 10 5 0 0 5 10 15 20 25 30 35 40 DISPOSABLE INCOME (Billions of dollars) 45 O $21.2 billion 60 -O- Consumption Function Suppose now that Kluane's national income increases to $34 billion. Assuming the amount paid in taxes is fixed at $10 billion and that MPC = 0.8, what is the new amount of household consumption?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Please answer everything in the photo including the graph.
Transcribed Image Text:Consider the hypothetical country of Kluane. Suppose that national income in Kluane is $30 billion, households pay $10 billion in taxes, household
consumption is equal to $18 billion, and the marginal propensity to consume (MPC) is 0.8.
On the following graph, use the blue line (circle symbol) to plot the economy's consumption function.
CONSUMPTION (Billions of dollars)
50
45
40 +
35 -
30 4
25
20
15 C
10
5
0
0
5
10 15 20 25 30 35
40
DISPOSABLE INCOME (Billions of dollars)
O$21.2 billion
$25.2 billion
O$24.4 billion
45
Suppose now that Kluane's national income increases to $34 billion. Assuming the amount paid in taxes is fixed at $10 billion and that MPC = 0.8,
what is the new amount of household consumption?
$26.8 billion
50
-O-
Consumption Function
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