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C = 80 + 0.6Yd 1. Draw the consumption function 2. What is the value of...

C = 80 + 0.6Yd

1. Draw the consumption function

2. What is the value of consumption spending when the disposable income equals zero?

3. What is the value of MPC?

4. What is the value of MPS?

5. What is the value of consumption spending when the disposable income equals to 400?

6. What is the value savings when disposable income equals to 400?

7. Write the saving function

8. Draw the saving function

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Homework Answers

Answer #1

C = 80 + 0.6Yd

1. Consumption function is drawn below

2. C = 80 when Yd = 0

3. MPC = 0.6 because it is the slope of the consumption function

4. It is 0.4. This is because MPS = 1 - MPC = 0.6

5. When Yd = 400, C = 80 + 0.6*400 = $320

6. Saving = Yd - C = 400 - 320 = $80

7. Saving S = Yd - C = Yd - 80 - 0.6Yd = -80 + 0.4Yd

8. Saving function is drawn below

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