assume that you have collected a sample of observations from over 100 households and their consumption and income patterns. usin

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g these observations, you estimate the following regression , where c is consumption and y is disposable income.

1 answer:

FromTheMoon [43] · Answer 1 · 2024-06-15T11:59:35+03:00

The disposable income increases by $100, this means aggregate consumption will increase by $75 and autonomous consumption remains at $1000.

We are given the following in the question:

C(Y D )= 1000+0.75 YD

where C is the consumption and YD is the disposable income.

If the disposable income increases by $100, then we can write

C( Y D +100 ) - C(Y D) = 1000+ 0.75(Y D+100)- (1000 + 0.75 Y D)

C( Y D +100 ) - C(Y D)= 75

Thus, the aggregate consumption will increase by $75.

Autonomous consumption is the consumption when customer makes no disposable income.

Thus, we put YD = 0

C(0) = 1000+ 0.75(0)

C(0)= 1000

Thus, the autonomous consumption is $1000.

The disposable income increases by $100, this means aggregate consumption will increase by $75 and autonomous consumption remains at $1000.

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