Suppose now that country's national income increases to $35 billion. Assuming the amount paid in taxes is fixed at $12 billion and MPC = 0.7, what will be the new household consumption? O $21.6 billion O $22.3 billion O $23.7 billion O $19.5 billion
Suppose now that country's national income increases to $35 billion. Assuming the amount paid in taxes is fixed at $12 billion and MPC = 0.7, what will be the new household consumption? O $21.6 billion O $22.3 billion O $23.7 billion O $19.5 billion
Chapter18: The Keynesian Model
Section: Chapter Questions
Problem 6SQ
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Need help with this, please show me where to plot the two points on the graph as well. Thanks!
Transcribed Image Text:Suppose now that country's national income increases to $35 billion. Assuming the amount paid in taxes is fixed at $12 billion and MPC = 0.7, what will
be the new household consumption?
O $21.6 billion
O $22.3 billion
O $23.7 billion.
O $19.5 billion
Transcribed Image Text:Consider a country with the national income of $30 billion, the amount of taxes paid by households of $12 billion, and household consumption of $16
billion. Suppose that the marginal propensity to consume (MPC) is 0.7.
On the following graph, use the blue line (circle symbol) to plot the economy's consumption function.
Hint: You should plot the first point where household consumption equals $16 billion. Then, plot the second point when real disposable income rises by
$10 billion.
REAL CONSUMPTION (Billions of dollars)
50
45
40
10
5
0
0
O
O
25 30 35
5 10 15 20
40 45
REAL DISPOSABLE INCOME (Billions of dollars)
50
Consumption Function
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