Homework answers / question archive / Consider a hypothetical economy in which the marginal propensity to consume (MPC) is 0

Consider a hypothetical economy in which the marginal propensity to consume (MPC) is 0

Economics

Share With

Consider a hypothetical economy in which the marginal propensity to consume (MPC) is 0.6. That is, if disposable income increases by $1, consumption increases by 60 cents.

Suppose further that last year, disposable income in the economy was $500 billion, and consumption was $400 billion. Based on this data, derive a function that relates the economy's consumption to disposable income.

Suppose that this year, disposable income is projected to be $600 billion. Based on your analysis, how much would expected consumption and saving to be?