Need answers for c and d 1. Use the following table with information on the consumption behavior of the people ofGotham to answer the following questions:Disposable Income Consumption$300$440$0$200a. What is the value of 'a' or autonomous consumption in this economy?b. What is the value of 'b' or the Marginal Propensity to Consume (MPC) in this economy?Interpret the meaning of this MPC value in one sentence.c. Write the equation representing the consumption function for this economy.d. If the total disposable income in the economy was $600 what would be the amount ofconsumption spending in this economy? What would be the amount of saving?

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Description: Need answers for c and d 1. Use the following table with information on the consumption behavior of the people ofGotham to answer the following questions:Disposable Income Consumption$300$440$0$200a. What is the value of 'a' or autonomous consumption

Answered: 1. Use the following table with…

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter9: Aggregate Demand

Section: Chapter Questions

Problem 1.3P

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Need answers for c and d

1. Use the following table with information on the consumption behavior of the people of
Gotham to answer the following questions:
Disposable Income Consumption
$300
$440
$0
$200
a. What is the value of 'a' or autonomous consumption in this economy?
b. What is the value of 'b' or the Marginal Propensity to Consume (MPC) in this economy?
Interpret the meaning of this MPC value in one sentence.
c. Write the equation representing the consumption function for this economy.
d. If the total disposable income in the economy was $600 what would be the amount of
consumption spending in this economy? What would be the amount of saving?

Expert Solution

Step 1

The consumption function (C) , which is the mix of autonomous and non-autonomous consumption, reveals the direct relation between the desired consumption by citizens and the level of disposable earnings. Mathematically, it is written as:

$\begin{array}{rcl} C & = & A u t o n o m o u s c o n s u m p t i o n + N o n - A u t o n o m o u s o n e \\ = & a + b Y \end{array}$

Where:

'a' is the consumption at zero income and 'b' is the value of MPC.

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