Mr. Weiss Section 3 – Module 21

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Presentation transcript:

Mr. Weiss Section 3 – Module 21 1. In Mainland, a small, closed economy with no government sector, when disposable income is $800, consumer spending is $800, and when disposable income is $1,800, consumer spending is $1,600. Assume that the aggregate price level and the interest rate are fixed in mainland. What is the value of autonomous consumer spending in Mainland? What is the value of the MPC in Mainland? What is the consumption function in Mainland?

Mr. Weiss Section 3 – Module 21 a. The value of autonomous consumer spending in Mainland is $160. To find this value, first recall that the consumption function can be written as C=A + MPC x YD. Next, find the MPC, which is the change in consumer spending divided by the change in disposable income, or 800/1000= 0.8., substitute one of the consumer spending and disposable income combinations into the consumption function to find the value of autonomous consumer spending: thus, C=A + 0.8 x YD and 800 = A + (0.(8) x (800) or A = $160.

b. What is the value of the MPC in Mainland? Mr. Weiss Section 3 – Module 21 1. In Mainland, a small, closed economy with no government sector, when disposable income is $800, consumer spending is $800, and when disposable income is $1,800, consumer spending is $1,600. Assume that the aggregate price level and the interest rate are fixed in mainland. b. What is the value of the MPC in Mainland? b. The MPC is 0.8. (See part A answer).

c. What is the consumption function in Mainland? Mr. Weiss Section 3 – Module 21 1. In Mainland, a small, closed economy with no government sector, when disposable income is $800, consumer spending is $800, and when disposable income is $1,800, consumer spending is $1,600. Assume that the aggregate price level and the interest rate are fixed in mainland. c. What is the consumption function in Mainland? c. The consumption function is C=160 + 0.8 x YD. See part A.

Mr. Weiss Section 3 – Module 21