Using the Keynesian consumption function, prove numberically that, as the MPC rises from 0.7 to 0.8,...

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Using the Keynesian consumption function, prove numberically that, as the MPC rises from 0.7 to 0.8,...

Using the Keynesian consumption function, prove numberically that, as the MPC rises from 0.7 to 0.8, saving declines. SupposeYd equals $10,000 and Co equals $1,000.

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Answer 1

Answer #1

Consumption function is given by C = 1000 + 0.7Yd or C = 1000 + 0.7*10000 = 8000. Saving = Yd - consumption or saving = 10000 - 8000 = 2000.

Now assume that mpc = 0.8. Consumption C = 1000 + 0.8*10000 = 9000. Saving = Yd - consumption or saving = 10000 - 9000 = 1000.

Hence, as MPC rises, savings should fall because increased income is now more used in consumption that as savings.

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Answer 2

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Add Answer to: Using the Keynesian consumption function, prove numberically that, as the MPC rises from 0.7 to 0.8,...

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Using the Keynesian consumption function, prove numberically that, as the MPC rises from 0.7 to 0.8,...