Consider a hypothetical economy in which the marginal propensity to consume (MPC

Question

Consider a hypothetical economy in which the marginal propensity to consume (MPC) is 0.50. That is, if disposable income increases by $1, consumption increases by 50. Suppose further that last year disposable income in the economy was $500 billion and consumption was $400 billion. On the following graph, use the blue line (circle symbol) to plot this economy's consumption function based on these data. From the preceding data, you know that the level of saving in the economy last year was billion and the marginal propensity to save in this economy is. Suppose that this year, disposable income is projected to be $600 billion. Based on your analysis, you would expect consumption to be billion and saving to be billion.

Explanation / Answer

From the preceding data you know that the level of saving in the economy last year was 100 billion and MPS in this economy is 0.5

Suppose that this year, disposable income is projected to be $600 billion. Based on your analysis , you would expect consumption to be 450 billion and saving to be 150 billion

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