Activity 5
Consumption function
Refer to the consumption function and answer the following questions:
(a)
What is the amount of autonomous consumption?
(b)
At what income level will savings be equal to zero?
(c)
What is the amount of consumption when disposable income is equal to N$200?
(d)
What is the amount of saving or dissaving when disposable income is equal to
N$100?
(e)
Suppose disposable income increases from N$300 to N$400.
Calculate the
marginal propensity to consume and the marginal propensity to save.
Feedback
(a)
Ca = N$75
(b)
Saving is zero where Y = N$300
(c)
Consumption = N$225
(d)
Dissaving = N$50
(e)
Change in Y = 100
Change in C = 75
Change in S = 25
MPC = ΔC/ΔY = 75/100 = 0.75
MPS = ΔS/ΔY = 25/100 = 0.25