Question

The table below depicts the consumption schedule for an economy. Assume there are no taxes in this economy Disposable Income and Consumption Disposable Inc Consumption (dollars) (dollars) $0 $25,000 10,000 20,000 30,000 40.000 40,000 45,000 50,000 60.000 References Instructions: Use the tool provided 'C' to plot the consumption line point by point points total). Use the tool Equilibrium' to graph where consumption equals disposable income, plot the equilibrium line point by point use each disposable income entry in the table above for a total of 7 points)

Answer 1

Answer:

A]

NOW Tools ilibrium ilihrium Consumption (dollars) 70,000 65,000 60,000 55,000 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 10,000 20,000 30,000 40.000 50,000 60,000 70,000 Real GDP (dollars)

B] Equilibrium consumption is the consumption level when consumption=disposable income. So equilibrium consumption=50,000

C]

Marginal propensity to consume (MPC) is the increase in consumption when income changes marginally. Thus

MPC=Change in consumption/Change in disposable income = (30,000-25,000)/(10000-0)=0.5

Marginal propensity to save (MPS) is the increase in savings when income changes marginally. MPS=1-MPC. So here MPS=1-0.5=0.5

Thus,

MPC = 0.5

MPS = 0.5

c) Autonomous level of consumption is the level of consumption when disposable income is 0. So here autonomous level of consumption=25,0000