2. The consumption function Consider a country with the national income of $12 billion, the amount of taxes paid by households of $3 billion, and household consumption of $7 billion. Suppose that the marginal propensity to consume (MPC) is 0.75. 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 $7 billion. Then, plot the second point when real disposable income rises by $4 billion. REAL CONSUMPTION (Billions of dollars) 20 16 16 + 14 12 10 0 0 2 810 10 12 14 16 REAL DISPOSABLE INCOME (Billions of dollars) 46 O $7.75 billion O$9.75 billion 18 20 Suppose now that country's national income increases to $13 billion. Assuming the amount paid in taxes is fixed at $3 billion and MPC = 0.75, what will be the new household consumption? O $7.5 billion O $10.75 billion Consumption Function (?)

2. The consumption function Consider a country with the national income of $12 billion, the amount of taxes paid by households of $3 billion, and household consumption of $7 billion. Suppose that the marginal propensity to consume (MPC) is 0.75. 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 $7 billion. Then, plot the second point when real disposable income rises by $4 billion. REAL CONSUMPTION (Billions of dollars) 20 16 16 + 14 12 10 0 0 2 810 10 12 14 16 REAL DISPOSABLE INCOME (Billions of dollars) 46 O $7.75 billion O$9.75 billion 18 20 Suppose now that country's national income increases to $13 billion. Assuming the amount paid in taxes is fixed at $3 billion and MPC = 0.75, what will be the new household consumption? O $7.5 billion O $10.75 billion Consumption Function (?)

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter9: Aggregate Demand

Section: Chapter Questions

Problem 1.1P

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