Notes1. Define MPC (equation):2. Define APC (equation):3. What are the two basic hypotheses that Keynes believed about the APC and MPC?4. Define consumer wealth (ID and significance):5. What three things shift the consumption function (C-Ftn)?1)2)3)The consumption function is generally defined as C = a + b*Yd, where a is an intercept term, or autonomous consumption, and b is the slope term, or the marginal propensity to consume (MPC). Yd is after-tax income. Graphically, the consumption function (C-Ftn) is upward sloping, with an intercept above the horizontal axis. A 45 degree reference line is drawn to show where we have consumption equal to consumer spending (C = Yd). Where this crosses the C-Ftn is YBE, or break-even level. To the left of YBE, there is dissaving and to the right of YBE is saving. APC > 1→ dissaving, APC = 1→break-even, APC < 1→saving6. Suppose we have a consumption function: C = 10,000 + 0.8*Yd. a) What is the MPC for this equation? What is their autonomous consumption?b) How much would consumer spending (C) amount to for a family with after-tax income of $100,000? c) Are they breaking even? Why or why not? d) What is their APC? e) What is their level of savings (S)?8. Now, suppose we have a C-Ftn: C = 20,000 + 0.8*Yd. A family has after-tax income of $100,000. a) What is their consumer spending (C)? b) What is their APC? c) What is their level of savings (S)?9. Using a consumption function diagram, illustrate: the Fed decides to lower interest rates. How does this affect the overall level of economic
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