Question #54136

Use the information provided below to construct equations relating consumption and saving to disposable income:
income consumption saving tax
25 million 5 million 15 million 5 million

Expert's answer

The consumption equation is:

C = Ca + c*(Y - T), where C - consumption, c - marginal propensity to consume, Ca - autonomous consumption, Y - income, T - tax.

c = C/Y

C = Ca + 5/25*(25 - 5) = Ca + 0.2*(Y - 5) = Ca - 1 + 0.2Y

C = Ca + c*(Y - T), where C - consumption, c - marginal propensity to consume, Ca - autonomous consumption, Y - income, T - tax.

c = C/Y

C = Ca + 5/25*(25 - 5) = Ca + 0.2*(Y - 5) = Ca - 1 + 0.2Y

## Comments

Assignment Expert19.08.15, 17:33Dear visitor, consumption function defined as C = a + b(Y – T), where "a" is an autonomous consumption and "b" is the marginal propensity to consume. Savings function with respect to disposable income is S = -a + (1 – b) (Y – T).

i have no glue16.08.15, 21:36maybe Y= I-C-T

y=25-5-15

Y=5

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