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Homework answers / question archive / ANALYSIS Linear equations for the consumption and saving schedules take the general form: 17 C= a + by and S=-+ (1 - b), eBook where CS, and Yare consumption, saving, and national income, respectively
ANALYSIS Linear equations for the consumption and saving schedules take the general form: 17 C= a + by and S=-+ (1 - b), eBook where CS, and Yare consumption, saving, and national income, respectively. The constant a represents the vertical intercept, and b represents the slope of the consumption schedule. a. Use the following data to substitute specific numerical values into the consumption and saving equations. National Income (7) $0 200 400 Consumption (C) $ 120 280 440 800 600 800 760 ME
Submit Instructions: If you are entering any negative numbers be sure to include a negative sign (4) In front of those numbers. 17 C- Y Sa eBook b. What the economic meaning of b? (Click to select) What is the economic meaning of (-b)? (Click to select)
Sk c. Suppose that the amount of saving that occurs at each level of national Income falls by $20 but that the values of band (1 - remain unchanged. Restate the saving and consumption equations Inserting the new numerical values. Instructions: If you are entering any negative numbers be sure to include a negative sign in front of those numbers. Se Y ptx
Ans
1)
First we have to find Marginal propensity to Consume
Formulas of MPC.
MPC = (CONSUMPTIONn+1 - CONSUMPTIONn) ÷ (INCOMEn+1 - INCOMEn)
Now we Put values in Formula
MPC = (280 - 120) ÷ (200 - 0) = 160 ÷ 200 = 0.8
Hence MPC is 0.8 (it is also value of b)
??????so we know concept
MPC + MPS = 1
0.8 + MPS = 1
MPS = 1 - 0.8
MPS = 0.2
So our equation for Consumption function
C = a +bY
| C = 120 + 0.8Y |
Now equation for saving function
S = -a + (1 - b)Y
S = -120 + (1 - 0.8)Y
| S = -120 + 0.2Y |
b) Meaning of b
Ans :- marginal propensity to consume (MPC)
c) Meaning of ( 1 - b )
Ans :- marginal propensity to save (MPS)
2) when Nation income fall by $20 then autonomous saving also decline and autonomous consumption rises. Value of a change.
a = 120 + 20 = 140.
Then consumption equation function.
| C = 140 + 0.8Y |
The saving equation function
| S = -140 + 0.2Y |
