The aggregate consumption function and the marginal propensity to consume and save in Eastlandia. Concept Introduction: Gross Domestic Product (GDP): It is defined as the value of output which is produced inside the border of a country in the given interval of time. 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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Chapter 26, Problem 4P

To determine

To determine: The aggregate consumption function and the marginal propensity to consume and save in Eastlandia.

Concept Introduction:

Gross Domestic Product (GDP): It is defined as the value of output which is produced inside the border of a country in the given interval of time.

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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