Consumption function APS / APC MPS / MPC

Question 1

What does the consumption function express?

Answer 1

Consumption in terms of autonomous consumption and induced consumption

Autonomous consumption is not related to changes in income, while induced consumption is related to changes in income.

Question 2

What is the formula for the consumption function?

Answer 2

C = C0 + cY

C is total consumption, C0 is autonomous consumption, c is the marginal propensity to consume (MPC), and Y is disposable income.

Question 3

What are the two components of the saving function?

Answer 3

Autonomous saving and induced saving

Autonomous saving is not related to changes in income, while induced saving is related to changes in income.

Question 4

What is the formula for the saving function?

Answer 4

S = -C0 + sY

S is total saving, C0 is autonomous dissaving, s is the marginal propensity to save (MPS), and Y is disposable income.

Question 5

In Case 1 of the example calculation, what is the autonomous consumption value?

Answer 5

200

This is the amount expended at zero income.

Question 6

How is the marginal propensity to consume (MPC) calculated?

Answer 6

MPC = ΔC / ΔY

Choose points that make the calculation simpler, such as when income is near zero.

Question 7

What values were used to calculate the MPC in Case 1?

Answer 7

Income of 400 and 350

This choice was made to demonstrate the calculation.

Question 8

What is the calculated MPC in Case 1?

Answer 8

0.2

This was derived from the change in consumption over the change in income.

Question 9

What is the consumption function derived in Case 1?

Answer 9

C = 200 + 0.2Y

This function shows the relationship between total consumption and disposable income.

Question 10

What is the first step in graphing the consumption function?

Answer 10

Draw a 45-degree line

This line represents equal values of consumption and income.

Question 11

How do you determine autonomous consumption or saving from the graph?

Answer 11

Where the function intercepts the y-axis

This point indicates the level of consumption or saving when income is zero.

Question 12

What should random values for disposable income be used for in the graphing process?

Answer 12

To calculate the output value

This helps to plot additional points on the graph.

Question 13

What is the final step after plotting values on the graph?

Answer 13

Draw a straight line through the plotted points

This visually represents the consumption function.