Answer:
MPC = 0.8
MPS = 0.2
Aggregate consumption function :
C = 100 + (0.8 × YD)
Explanation:
From the table above :
Marginal Propensity to Consume (MPC) which is the ratio of change in consumption of an economy to change in the disposable income during the same period.
Choosing any two years from the table and calculating the ratio of the difference in consumer spending and disposable income.
MPC = change in consumption spending ÷ change in disposable income
A.) MPC = $(340 - 380) ÷ $(300 - 350)
MPC = -$40 ÷ - $50 = 0.8
B.) Marginal Propensity to save(MPS)
Using the relation:
MPS + MPC = 1
MPC = 0.8
MPS + 0.8 = 1
MPS = 1 - 0.8 = 0.2
C.) Aggregate consumption function : C = A + (MPC × YD)
C = Consumption,
A = Autonomous consumption
YD = Disposable income
To get A:
A = C - (MPC × YD)
C = 340, YD = 300
A = 340 - (0.8 × 300)
A = 340 - 240 = $100million
Substituting A = 100 into the aggregate consumption function
C = 100 + (0.8 × YD)