Question

If the consumption function is C = $600 billion + 0.9Y, Instructions: In part a, enter your response rounded to one decimal place. In parts b-d, enter your responses rounded to the nearest whole number. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers. a. What is the MPC? 0.9 b. How large is autonomous consumption? $ 600 billion c. How much do consumers spend with incomes of $4 trillion? $ 4200 billion d. How much do they save? $ billion

Answer 1

Answer and Explanation:

Given equation C = $600 billion +0.9Y

Where c = total consumer spending

$600 billion = consumer autonomous spendinf

0.9= marginal propensity to consume(mpc)

Y= income of consumers

A. Marginal propensity to consume(MPC)= 0.9 from equation given

B. Autonomous spending which is spending that is constant =$600 billion from equation given

C. Using equation of consumer spending above, C= $600 billion+0.9Y

With $4200 billion in income, consumers spending =$600 billion+0.9*$4200 billion

=$4380 billion

D. Savings= consumers income-consumers spending= $4200 billion-$4380 billion= -$180 billion

Therefore there was a deficit not saving