Question

The equation for a consumption function in a simple​ economy, where there are no​ taxes, is given by C​ = 300 ​+ 0.75​Y, where Y denotes aggregate income. Autonomous consumption is nothing. ​(Enter your response as an​ integer.) MPC is nothing. ​(Enter your response rounded to two decimal​ places.)

Answer 1

a. The autonomous consumption is 300.

b. Marginal propensity to consume is 0.75.

Step-by-step explanation:

This is an example of Keynesian consumption function which shows a positive relationship between consumption expenditure (C) and aggregate income.

In the consumption function C​ = 300 ​+ 0.75​Y:

a. The autonomous consumption is 300. It is spending that consumers have to make even without disposable income.

b. Marginal propensity to consume is 0.75. It shows how much consumption spending changes as result of change in income. That is, consumption expenditure will increase by 0.75 whenever there is an increase of $1 in income.