Question

2. Use the following consumption function data to answer the questions next... Keynesian Consumption Function (billions of dollars per year) Real disposable income Consumption Saving MPC MPS $100 $150 $ 200 200 300 250 400 300 500 350 a. Calculate the saving schedule. b. Determine the marginal propensities to consume (MPC) and save (MPS). c. Determine the break-even income. d. What is the relationship between the MPC and the MPS? Tucker, Irvin B.. Macroeconomics for Today (Page 231). South-Western College Pub. Kindle Edition. (9th Edition)

Answer 1

The table below computes the required data

Real disposable income YD	Consumption C	Saving S = YD - C	MPC = ∆C/∆Yd	MPS=∆S/∆Yd
100	150	-50
200	200	0	0.5	0.5
300	250	50	0.5	0.5
400	300	100	0.5	0.5
500	350	150	0.5	0.5

a) The saving schedule is computed by the difference of income and consumption.

b) As mentioned, MPC is the ratio of change in consumption to change in disposable income. Similarly, MPS is the ratio of change in saving to change in disposable income

c) The break-even income is the one where saving is zero. This is equal to 200.

d) The relationship between the MPC and the MPS is given by MPS + MPC = 1.