I didn\'t understand this example From: For instance, autonomous consumption??(C

Question

I didn't understand this example
From: For instance, autonomous consumption??(Ca)might be $500 billion at pointH.Let???s assume the marginal propensity to consume??(c)is 0.75. If income at point??Y0is $2,000 billion, then consumption at point??Fis $500 billion plus 0.75 times $2,000 billion, or $2,000 billion. Similarly, if income at pointY1is $8,000, then consumption is 500 plus 0.75 times 8,000, or $6,500 billion at point??D.
Source:ISBN: 0132997819 | Title: Macroeconomics | Publisher: Prentice Hall

Explanation / Answer

The consumption function is represented as: C=A+MD Where: C = Consumer spending A = Autonomous consumption, or the level of consumption that would still exist even if income was $0 M = Marginal propensity to consume, which is the ratio of consumption changes to income changes D = Real disposable income consumption, if income is 2000= 500+(.75x2000)= $2000 consumption if income is 8000= 500+(.75x8000)= $6500

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.