
To determine: The aggregate consumption function and the marginal propensity to consume and save in Eastlandia.
Concept Introduction:
The formula to calculate change in GDP is:

Here,
is autonomous spending
- MPC is marginal propensity to consume.
Marginal Propensity to Consume (MPC): It is defined as the change which occurs in total consumption level due to change in income.
The formula to calculate MPC is:

Here,
is change in income.
is change in consumption level.
- MPC is marginal propensity to consume.
Marginal Propensity to Save (MPS): It is defined as the variation in the saving when the income of an individual varies.
The formula to calculate MPS is:

Here,
- MPC is marginal propensity to consume.
- MPS is marginal propensity to save.
Consumption Level (C): It is one of the largest components of GDP .The individual consumption depends on the disposable income.
Consumption Function: It shows how the change in disposable income of an individual changes the consumption level.
The formula to calculate consumption function is:

Here,
- C is consumption level.
is autonomous consumption.
is disposable income
- MPC is marginal propensity to consume.
Autonomous Consumption: This is defined as the consumption level when the income of an individual is zero.

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