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4 September, 06:15

consumption function is C = $600 billion + 0.9Y, Instructions: In part a, enter your response rounded to one decimal place. In parts b-d, enter your responses rounded to the nearest whole number. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers. a. What is the MPC? 600 b. How large is autonomous consumption? $ billion c. How much do consumers spend with incomes of $4 trillion? $ billion d. How much do they save? $ billion

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  1. 4 September, 06:44
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    A. 0.9.

    B. $600,000,000,000.

    C. $4,200,000,000,000.

    D. 0.1.

    Explanation:

    A. MPC (marginal propensity to consume).

    This is a function of income is gotten by dividing the change in consumption by change in income, thus:

    ∆C/∆Y

    The consumption is a function of income:

    C = f (Y).

    Therefore the answer to A is 0.9.

    B. The autonomous consumption is $600,000,000,000

    C. When income is $4,000,000,000,000.

    C = $600,000,000,000 + 0.9 ($4,000,000,000,000)

    C = $600,000,000,000 + $3,600,000,000,000

    C = $4,200,000,000,000

    D. MPS + MPC = 1

    Therefore:

    MPS + 0.9 = 1

    MPS = 1 - 0.9

    MPS = 0.1
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