1) Use the following data to answer the questions below:
Graph the consumption function, with consumption spending on the vertical axis and disposable income on the horizontal axis.
If the consumption function is a straight line, what is its slope?
Fill in the saving column at each level of income. If the saving function is a straight line, what is its slop?
2) Consumption Function How would an increase in each of the following affect the consumptions function?
Net taxes
The interest rate
Consumer optimism or confidence
The price level
Consumers’ net worth
Disposable income
3) For each of the following values for the MPC, determine the size of the simple spending multiplier and total change in real GDP demanded following a $10 billion decrease in spending:
MPC = 0.9
MPC = 0.75
MPC = 0.6