In a simple economy (assume there are no taxes, thus Y is disposable income), the consumption function is C=250 + 0.8Y
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Thus, autonomous consumption is---and the marginal propensity to consume is---. A consumer whose income increases by $100 will increase consumption by $---.
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Autonomous consumption is the intercept of the consumption function, which is 250.
The marginal propensity to consume (MPC) is the slope of the consumption function, which is 0.8.
If a consumer's income increases by $100, they will increase their consumption by MPC * $100, which is 0.8 * $100 = $80.
does that mean consumption=250+80=330
No, the calculation you provided is incorrect.
The consumption function is C = 250 + 0.8Y. In this equation, Y represents disposable income, not the change in income.
To calculate the change in consumption resulting from a $100 increase in income, we need to use the marginal propensity to consume (MPC), which is 0.8.
The change in consumption is equal to MPC * change in income. In this case, the change in income is $100.
So, the change in consumption would be 0.8 * $100 = $80.
If we want to calculate the new level of consumption, we need to add the change in consumption to the initial level (autonomous consumption).
Therefore, the new level of consumption would be 250 + $80 = $330.
The saving function in this economy is:
S=---+---Y.
To determine the saving function, we need more information. Specifically, we need the values for the intercept (autonomous saving) and the slope (marginal propensity to save).
Please provide the missing values in the saving function equation, and I will be able to help you with the calculation.
There isn't anything else for I to provide. Ain't the autonomous saving is 250 andslope for the marginal propensity to save is .8?
Apologies for the confusion. Given that the consumption function is C = 250 + 0.8Y, we can determine the saving function using the equation:
S = Y - C
Substituting the consumption function:
S = Y - (250 + 0.8Y)
Simplifying:
S = Y - 250 - 0.8Y
Combining like terms:
S = 0.2Y - 250
Therefore, the saving function in this economy is S = 0.2Y - 250, where 0.2 is the marginal propensity to save and -250 is the autonomous saving component.