Consider a hypothetical economy in which the marginal propensity to consume (MPC) is 0.50. That is, if disposable income increases by $1, consumption increases by 50¢.Suppose further that last year disposable income in the economy was $400 billion and consumption was $350 billion.On the following graph, use the blue line (circle symbol) to plot this economy's consumption function based on these data. 700600500400300200100-100100200300400500600700800DISPOSABLE INCOME (Billions of dollars)From the preceding data, you know that the level of saving in the economy last year was sbillion and the marginal propensity to save in thiseconomy isCONSUMPTION (Billions of dollars) From the preceding data, you know that the level of saving in the economy last year was $billion and the marginal propensity to save in thiseconomy isSuppose that this year, disposable income is projected to be $600 billion. Based on your analysis, you would expect consumption to be $billion and saving to be $billion.

Given information MPC=0.5 Consumption=350 Output=400

Answered: Consider a hypothetical economy in…

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter24: Fiscal Policy

Section: Chapter Questions

Problem 8P

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Consider a hypothetical economy in which the marginal propensity to consume (MPC) is 0.50. That is, if disposable income increases by $1, consumption increases by 50¢.

Suppose further that last year disposable income in the economy was $400 billion and consumption was $350 billion.

On the following graph, use the blue line (circle symbol) to plot this economy's consumption function based on these data.

700
600
500
400
300
200
100
-100
100
200
300
400
500
600
700
800
DISPOSABLE INCOME (Billions of dollars)
From the preceding data, you know that the level of saving in the economy last year was s
billion and the marginal propensity to save in this
economy is
CONSUMPTION (Billions of dollars)

From the preceding data, you know that the level of saving in the economy last year was $
billion and the marginal propensity to save in this
economy is
Suppose that this year, disposable income is projected to be $600 billion. Based on your analysis, you would expect consumption to be $
billion and saving to be $
billion.

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