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20 June, 18:09

Assume that autonomous consumption is $1 comma 769 billion and disposable income is $10 comma 100 billion. Using the consumption function, calculate consumption expenditure if an increase of $1,000 in disposable income leads to an increase of $610 in consumption expenditure. Consumption expenditure is $ nothing billion. (Enter your response as a whole numbe

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  1. 20 June, 18:19
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    Consumption expenditure is $7,930 billion

    Explanation:

    Consumption function: C = A + MD

    where,

    C is the consumer spending,

    A is the autonomous consumption

    M is the marginal propensity to consume

    D is the disposable income

    MPC = Increase in consumption : Increase in income

    = $610 : $1000

    = 0.61

    Therefore,

    C = 1,769 + 0.61 (10,100)

    = 1,769 + 6,161

    = $7,930

    Therefore, the Consumption expenditure is $7,930 billion.
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