Draw the consumption function:

1

• Draw the consumption function
• C 150 0.8YD

2
(No Transcript)
3

• Draw the consumption function
• C 150 0.8YD
• At what level of income do households begin to
  save?
• By how much does consumption increase when income
  rises 200?

750
By 160 to 910
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(No Transcript)
5

• If the consumption function is
• C 200 0.9YD
• What does the saving function look like?
• What is the rate of desired saving when
  disposable income equals
• 500
• 1000
• 2000

S -200 0.1YD
-150
-100
0
6

• Compute 4 rounds of multiplier effects when
  autonomous investment increases by 100 million in
  a closed, private economy (no foreign trade nor
  government) and MPC 90.

7
1,000 million or 1 billion
What will be the final cumulative impact on
spending?
8

• Suppose the consumption function is
• C 400 0.8YD
• By how much will aggregate demand at current
  prices shift initially with
• -A 50 billion increase in government purchases?
• -A 50 billion tax cut
• -A 50 billion increase in income transfers

50 billion
40 billion
40 billion
Multiplier 1 _ 1-MPC
9

• Suppose the consumption function is
• C 400 0.8YD
• What will be the cumulative AD shift for
• A 50 billion increase in government purchases?
• A 50 billion tax cut
• A 50 billion increase in income transfers

250 billion
200 billion
200 billion
Multiplier 1 _ 1-MPC