The equation for a consumption function in a simple economy, where there are no taxes, is given by C = 300 + 0.75 Y, where Y denotes aggregate income. Autonomous consumption is nothing. (Enter your response as an integer.) MPC is nothing. (Enter your response rounded to two decimal places.)

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Business

Fisher Franco

26 April, 02:48

The equation for a consumption function in a simple economy, where there are no taxes, is given by C = 300 + 0.75 Y, where Y denotes aggregate income. Autonomous consumption is nothing. (Enter your response as an integer.) MPC is nothing. (Enter your response rounded to two decimal places.)

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Troy Bolton · Answer 1

a. The autonomous consumption is 300.

b. Marginal propensity to consume is 0.75.

Explanation:

This is an example of Keynesian consumption function which shows a positive relationship between consumption expenditure (C) and aggregate income.

In the consumption function C = 300 + 0.75 Y:

a. The autonomous consumption is 300. It is spending that consumers have to make even without disposable income.

b. Marginal propensity to consume is 0.75. It shows how much consumption spending changes as result of change in income. That is, consumption expenditure will increase by 0.75 whenever there is an increase of $1 in income.