Suppose the consumption function is given by C = a + bYd where a and b are constants (b is the marginal propensity to consume), and Yd is disposable income, equal to Y - T. Taxes vary with income and are equal to t0 + tY where t0 and t are constants (t is the marginal tax rate).
(a) What is the effect on consumption of a $1 change in total income?
(b) What is the effect on saving of a $1 change in total income?