Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Chapter 23, Problem 1.4P
To determine
Aggregate consumption, consumption and saving function and
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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
Draw the consumption function as the relation of the consumer's income and expenditure.
What does the slope of the consumption function depend on?
Is the consumer's income the only factor determining the level of his consumption spending?
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.
Chapter 23 Solutions
Principles of Economics (12th Edition)
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- What does the consumption function showarrow_forwardRefer to the information provided in Table Below to answer the questions that follow Y C S 0 50 -50 50 60 -10 75 65 10 100 70 30 120 74 46 140 78 62 160 82 78 1- If the Consumption Function is C= 50+0.2Y 2- Find the consumption and the saving for this economy. 3- Illustrate by graph the consumption function.arrow_forwardConsider 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 50¢. Suppose further that last year disposable income in the economy was $400 billion and consumption was $300 billion. On the following graph, use the blue line (circle symbol) to plot this economy's consumption function based on these data.arrow_forward
- With the help of consumption function C=10+0.5Y, calculate savings at an income level of $500arrow_forwardConsider 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,arrow_forwardi need the answer quicklyarrow_forward
- Can you completely this question?arrow_forward2. What is the domain and range of the consumption function C = 12 + 0.3Y? Write them as a set. What is the economic interpretation of 0.3 here?arrow_forwardSuppose that consumption equals $500 billion when disposable income is $0 and that each increase of $100 billion in disposable income causes consumption to increase by $70 billion. Draw a graph of consumption function using this information. What is the slope of the consumption function?arrow_forward
- Which of the following will increase the slope of the demand curve in the goods market to indicate an increase in the level of output and income? Select one: a. An increase in autonomous investment. b. An increase in the marginal propensity to consume. c. An increase in government spending. d. An increase in taxation.arrow_forwardImagine this economy has a 10% tax on income. The following are exogenous (not directly affected by income): G = 11 I = 4 X = M = 0 The consumption function is: C = k + cY, where k = 3, c = 0.8 Now we have to take that tax into account. Here is a way to think about it: Look at the consumption function. It says if you give me one more dollar of income I will spend 80 cents of it (mpc = 0.8). BUT I can only spend what I receive. I can only spend my after-tax or disposable income. With a 10% tax, I don't receive Y I receive 90% of Y or Y*(1-t) where t = 10% or 0.1. Let's define disposable income as Yd where Yd = Y*(1-t). Therefore we restate our consumption function as C = k + cYd Now we have, in this case, C = k + cYd or C = 3 + 0.8Yd or C = 3 + 0.8*(Y*[1-0.1]) or C = 3 + 0.72Y. Now what is the equilibrium GDP? Give the answer to ONE decimal place.arrow_forwardThe following equations describe an economy: C= 10 + 0.5 Y (Consumption function) I = 190-20i (Investment function) Derive the equations for IS curve and represent it graphically for i=2 and i=5arrow_forward
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