Q1.Suppose the consumption function in the United States economy is represented by thefollowing equation:C = 200 + .5 YD, where Y₁ = Y - T and T = 200.(a) What is the level of consumption in this economy if Yo = 0? Briefly explain how individuals"pay for" this consumption when Y₁ = 0.(b) Given the above parameters, calculate the level of consumption if Y = 1200.(c) Suppose Y increases to 1300. What happens to the level of Yo as Y increases to 1300(i.e. calculate the change in YD)?(d) What happens to the level of consumption when Y rises to 1300 (i.e. calculate the changein consumption)?(e) Using the change in Yo and the change in consumption you calculated, what is themarginal propensity to consume (MPC) for this economy? Is this the same as theparameter of the consumption function that represents the marginal propensity toconsume?(f) Write out the saving function for this economy. (HINT: S = Yo - C. Substitute for C fromthe information above and simplify the right side of the equation).(g) What is the level of saving when Yo=0? Explain how and why this occurs.(h) What is the marginal propensity to save for this economy? How do you know?

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Answered: Q1. Suppose the consumption function in…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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