Posted by **ben** on Friday, February 18, 2011 at 2:34am.

Consider the following consumption function. C = 200 + .75(DPI),

Where C is consumption, autonomous spending is 200, the MPC is .75, and DPI is disposable personal income.

Using the Graph below, graph the Consumption Function.

C

100

0 = Income

On the Graph, label the point where Savings = 0, as well as the areas of saving and dissaving.

Now, derive the point where Savings = 0 using the formulas. What is consumption when savings is zero?

What happens if autonomous spending increases to 300, so C= 300 + .75(DPI)? Show on the graph, and solve for the savings = 0 income below.

7. Consider the following Data:

MPS = .2

Autonomous spending is 100

What is the consumption function?

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