a) Draw a consumption function and label the axes. b) Suppose that your friend has a consumption function of the form y=1.4x+200. Is this function sustainable in the long run? Why or why not? c) Suppose that your consumption function is y=0.75+1000. What is your marginal propensity to consume? What is your autonomous expenditure? d) State the permanent income hypothesis. e) Suppose that I raise your income today by $10, and lower it tomorrow by $10. How would your behavior change according to the consumption function (aka Keynesian, aka rule-of-thumb) model? And what about according to the permanent income hypothesis model?

a) Draw a consumption function and label the axes. b) Suppose that your friend has a consumption function of the form y=1.4x+200. Is this function sustainable in the long run? Why or why not? c) Suppose that your consumption function is y=0.75+1000. What is your marginal propensity to consume? What is your autonomous expenditure? d) State the permanent income hypothesis. e) Suppose that I raise your income today by $10, and lower it tomorrow by $10. How would your behavior change according to the consumption function (aka Keynesian, aka rule-of-thumb) model? And what about according to the permanent income hypothesis model?

Economics For Today

10th Edition

ISBN:9781337613040

Author:Tucker

Publisher:Tucker

Chapter18: The Keynesian Model

Section: Chapter Questions

Problem 8SQ

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