Consider a hypothetical economy in which the marginal propensity to consume (MPC) is 0.75. That is, if disposable income increases by $1, consumption increases by 75¢. Suppose further that last year disposable income in the economy was $500 billion and consumption was $450 billion. 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 $700 billion. Based on your analysis, you would expect consumption to be $_____ billion and saving to be $________ billion.
Consider a hypothetical economy in which the marginal propensity to consume (MPC) is 0.75. That is, if disposable income increases by $1, consumption increases by 75¢. Suppose further that last year disposable income in the economy was $500 billion and consumption was $450 billion. 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 $700 billion. Based on your analysis, you would expect consumption to be $_____ billion and saving to be $________ billion.
Chapter9: Demand-side Equilibrium: Unemployment Or Inflation?
Section: Chapter Questions
Problem 2TY
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Consider a hypothetical economy in which the marginal propensity to consume (MPC) is 0.75. That is, if disposable income increases by $1, consumption increases by 75¢.
Suppose further that last year disposable income in the economy was $500 billion and consumption was $450 billion.
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 $700 billion. Based on your analysis, you would expect consumption to be $_____ billion and saving to be $________ billion.
Transcribed Image Text:On the following graph, use the blue line (circle symbol) to plot this economy's consumption function based on these data.
700
600
Consumption Function
500
400
300
200
100
-100
100
200
300
400
500
600
700
800
DISPOSABLE INCOME (Billions of dollars)
CONSUMPTION (Billions of dollars)
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