In macroeconomic theory, total consumption expenditure on goods and Year 2004 20
ID: 2903903 • Letter: I
Question
In macroeconomic theory, total consumption expenditure on goods and Year 2004 2009 services, C, is assumed to be a linear Total consumption (C) $8,290 $10,094 function of national income, I. The table National income RS9932 S12.024 gives the values of C and I for 2004 and 2009 in country A (in billions of dollars a. Find the formula for C as a function of I. b. The slope of the linear function is called the marginal propensity to consume. What is the marginal propensity to consume for country Afrom 2004-2009? a. Find the formula for Cas a function of I. (Round to four decimal places as needed. Use integers or decimals for any numbers in the expression.) b. The marginal propensity to consume is (Round to four decimal places as needed.)Explanation / Answer
C = aI + b (C = total consumption expenditure on goods , I = income)
For the year 2004 , C = $8,290 , I = $9,932
==> 8290 = a(9932) + b
==> 9932a + b = 8290 ----------- (1)
For the year 2009 , C = $10,094 , I = $12,024
==> 10094 = a(12024) + b
==> 12024a + b = 10094 ----------- (1)
(1) - (2) ==> 9932a + b - (12024a + b) = 8290 - 10094
==> 9932a + b - 12024a - b = -1804
==> -2092a = -1804
==> a = 1804/2092 = 451/523
==> a = 0.8623
==> 9932(451/523) + b = 8290
==> b = 8290 - 8564.6883
==> b = -274.6883
Hence C = 0.8623 I - 274.6883
b) The marginal propensity to consume is 0.8623
since slope of C is a = 0.8623
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