lectureAssignment19

# lectureAssignment19 - to introduce a government taxes are...

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ECONOMICS 100 Lecture Assignment # 19 (Consumption and Savings) Source: LR11, Chapter 21, to page 526; LR10, Chapter 22, to page 515. The simple theory of income determination (to be presented in the next Lecture Assignment) is predicated on the following behaviour assumption: consumption demand by households is dependent on the (real) income of those households (individually, and therefore in the aggregate). We will assume that prices are constant so that real values and nominal values are the same (e.g., real income = nominal income). Put another way, assume that in the background we have an Aggregate Supply (AS) function which is perfectly elastic. Note: We will develop AS later on; this statement about it will make more sense when you are studying for the final exam! Assume that the Consumption Function can be represented by C = 10 + .8Y where C = consumption demand, and Y = household income (C is really a function of disposable income, to be precise, but since we have yet

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Unformatted text preview: to introduce a government, taxes are assumed to be equal to zero; consequently, at this point, total income and disposable income are the same; to use symbols from a later assignment, Yd = Y – T, but T = 0, so Yd = Y). 1. What is the average propensity to consume (APC)? 2. What is the marginal propensity to consume (MPC)? 3. What is the slope of the Consumption Function? 4. Graph the Consumption Function with C on the vertical axis and Y on the horizontal axis. Suppose that this is a simple economy and that whatever households do not spend on consumption is saved, so that C + S = Y Where S = savings. 5. What is the equation of the Savings Function ? 6. What is the average propensity to save (APS)? 7. What is the marginal propensity to save (MPS)? 8. Graph the Savings Function. 9. What is the value of MPC + MPS in this case? Why does that make sense?...
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## This note was uploaded on 08/24/2010 for the course ECO 100 taught by Professor Indart during the Fall '08 term at University of Toronto.

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lectureAssignment19 - to introduce a government taxes are...

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