Given the individual consumption function C = $1000 + 0.95YD, Instructions: Enter your responses as a...
Given the individual consumption function C = $1000 + 0.95YD,
Instructions: Enter your responses as a whole number.
a. How much is saved if YD is $60,000?
$
b. How much does consumption increase if YD increases by $1,000?
$
Homework Answers
C = $1000 + 0.95YD
a.
C = 1000 + (0.95*60,000)
C = 58,000
Savings = YD - Consumption
Savings = 60,000 - 58,000
Savings = $2,000
b.
MPC = 0.95
Multiplier = 1 / 1 - MPC
= 1 / 1 - 0.95
= 20
Multiplier = Change in Income / change in Consumption
Change in consumption = Change in Income / Multiplier
Change in consumption = 1000 / 20
Change in consumption = 50
So, consumption increases by $50
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