(Advanced Analysis) Linear equations for the consumption and saving schedules ta

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. National Income (Y) Consumption (C) $ 0 $ 100 200 290 400 480 600 670 800 860 Instructions: If you are entering any negative numbers, be sure to include a negative sign (-) in front of those numbers. C = $ Y S = $ Y b. What is the economic meaning of b? What is the economic meaning of (1-b)? 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 = $ Y S = $ Y

Explanation / Answer

a)S=(1-0.6)Y-80 = 0.4Y-80 .......b)MPS+MPC=1 b + (1-b) = b+1-b = 1......c)C=100+0.6Y

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