Question

# 2. Use the following consumption function data to answer the questions next... Keynesian Consumption Function (billions...

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)

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.

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