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Question 1: Keynesian Consumption Consider the following Keynesian Consumption Function: C = C ̄ + cY...

Question 1: Keynesian Consumption

Consider the following Keynesian Consumption Function:

C = C ̄ + cY (1)

where, C ̄ = 1000 and c = 0.8.

  1. Draw a figure corresponding to Equation 1 and call that Figure 1.

  2. Define MPC. What is the value of MPC in Equation 1? Interpret your answer.

  3. Now assume that Y = 50000. How much will be Consumption (C)? What is the value

    of APC? Can you show the APC in Figure 1?

  4. What is the Consumption Puzzle? Explain it using both the rejection of ”secular stagnation” and the finding of Simon Kuznets.

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