ADVANCED ANALYSIS Linear equations for the consumption and saving schedules take

Question

ADVANCED ANALYSIS  Linear equations for the consumption and saving schedules take the general form:      

C = a + bY       

and

S = -a + (1-b)Y

where C, S, and Y are consumption, saving, and national income, respectively. The constant a represents the vertical intercept, and b represents the slope of the consumption schedule.

a. Use the following data to substitute specific numerical values into the consumption and saving equations.

Instructions: If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers.

C = $ ______ ( + OR -) _____Y.

S = $ ______ ( + OR - ) _____ Y.   

b. What is the economic meaning of b?   

(PICK ONE) MPS, APS,APC,OR MPC   

What is the economic meaning of (1 b)?   

(PICK ONE) MPS, APS,APC,OR MPC     

c. Suppose that the amount of saving that occurs at each level of national income falls by $20 but that the values of b and (1 b) remain unchanged. Restate the saving and consumption equations inserting the new numerical values.

Instructions: If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers.

C = $ ______ ( + OR - ) _____ Y.     S = $ ______ ( + OR - ) _____  Y.      

Which of these factors might have caused this change?     

A decrease in the stock market's value

OR

An increase in the stock market's value.

ADVANCED ANALYSIS Linear equations for the consumption and saving schedules take the general form: C = a + bY and S = -a + (1-b)Y where C, S, and Y are consumption, saving, and national income, respectively. The constant a represents the vertical intercept, and b represents the slope of the consumption schedule. a. Use the following data to substitute specific numerical values into the consumption and saving equations. Instructions: If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers. C = $ ______ ( + OR -) _____Y. S = $ ______ ( + OR - ) _____ Y. b. What is the economic meaning of b? (PICK ONE) MPS, APS,APC,OR MPC What is the economic meaning of (1 ½ b)? (PICK ONE) MPS, APS,APC,OR MPC c. Suppose that the amount of saving that occurs at each level of national income falls by $20 but that the values of b and (1 ½ b) remain unchanged. Restate the saving and consumption equations inserting the new numerical values. Instructions: If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers. C = $ ______ ( + OR - ) _____ Y. S = $ ______ ( + OR - ) _____ Y. Which of these factors might have caused this change? A decrease in the stock market's value OR An increase in the stock market's value.

Explanation / Answer

1.

C=80 + 0.6*Y

S= -80 + 0.4Y

2. b is the marginal propensity to consume MPC

(1-b) is marginal propensity to save MPS

3. New saving function is S= -80 + 0.4Y - 20 = -100 +.4Y

New consumption function C= 100 - .6Y

Autonomous saving is decreasing because of decrease is stock market value.

Y C S=Y-C New saving New Consumption 0 80 -80 -100 100 100 140 -40 -60 160 200 200 0 -20 220 300 260 40 20 280 400 320 80 60 340

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