Question 1A: [1 point] What is the difference between autonomous and induced con

Question

Question 1A: [1 point] What is the difference between autonomous and induced consumption?

Question 1B:

Disposable income (trillions of 2009 dollars)

Consumption expenditure (trillions of 2009 dollars)

0.0

0.8

1.0

1.6

2.0

2.4

3.0

3.2

4.0

4.0

Use the above table to answer the following questions.

a)   [1 point] What is the amount of autonomous consumption expenditure?

b) [1 point] What is the marginal propensity to consume?

Disposable income (trillions of 2009 dollars)

Consumption expenditure (trillions of 2009 dollars)

0.0

0.8

1.0

1.6

2.0

2.4

3.0

3.2

4.0

4.0

Explanation / Answer

1A. Ans : Autonomous consumption does not depend on income or real GDP where as induced consumption depends on income or real GDP.

2B. a ) Ans : Autonomous consumption expenditure = 0.8 trillion dollars

Explanation :

It is observed that at zero level of income , autonomous consumption expenditure is 0.8 trillion dollars. It is bacause , autonomous consumption expenditure does not depend on income.

b ) Ans : MPC = 0.8

Explanation :

MPC = Change in Consumption / Change in Income

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