a) Draw a consumption function and label the axes.b) Suppose that your friend has a consumption function of the form y=1.4x+200. Is this function sustainable in the long run? Why or why not?c) Suppose that your consumption function is y=0.75+1000. What is your marginal propensity to consume? What is your autonomous expenditure?d) State the permanent income hypothesis.e) Suppose that I raise your income today by $10, and lower it tomorrow by $10. How would your behavior change according to the consumption function (aka Keynesian, aka rule-of-thumb) model? And what about according to the permanent income hypothesis model?

diagrammatically, a consumption function looks like the following,

Answered: a) Draw a consumption function and…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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a) Draw a consumption function and label the axes.
b) Suppose that your friend has a consumption function of the form y=1.4x+200. Is this function sustainable in the long run? Why or why not?
c) Suppose that your consumption function is y=0.75+1000. What is your marginal propensity to consume? What is your autonomous expenditure?
d) State the permanent income hypothesis.
e) Suppose that I raise your income today by $10, and lower it tomorrow by $10. How would your behavior change according to the consumption function (aka Keynesian, aka rule-of-thumb) model? And what about according to the permanent income hypothesis model?

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