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# Answer to Question #50391 in Macroeconomics for abdulla sabit

Question #50391
What is consumption function?Suppose the consumption function of a society is as follows: C=100+0.85Y, where C=Total consumption expenditure and Y=Disposable income.
a.What is the autonomous consumption?
b.What is the total consumption when disposable income is 5000?
c.What is induced consumption when disposable income is 8000?
d.Find MPS .Prove that MPC+MPS=1
1
2015-01-15T09:21:52-0500
Consumption function is a single mathematical function used to express
consumer spending and could be written as follows:
C = A + MPC * D
where
C = Consumer spending
A = Autonomous consumption, or the level of consumption that would
still exist even if income was \$0
MPC = Marginal propensity to consume, which is the ratio of
consumption changes to income changes
D = Real disposable income
a. So, autonomous consumption = A = 100
b. C=100+0.85Y = 100+0.85 * 5000 = 4350
c. Induced consumption is household consumption that varies with
income = MPC * D = 0.85 * 8000 = 6800
d. MPC+MPS=1
MPS = 1 &ndash; MPC = 1 &ndash; 0.85 = 0.15
We can prove it:
If Yd = C + S, then any change in Yd must resolve a change in C and
some part a change in S.
So we can write:
&Delta;Yd = &Delta;C + &Delta;S
If we divide both sides by &Delta;Yd, and we get:
1 = MPC + MPS

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