Advanced analysis) suppose that the linear equation for consumption in a hypothetical economy is:

c = 40 + 0.8y

also suppose that income (y) is $400. determine the values for the following: mpc, mps, c(consumption), apc, s(savings), aps

0.8; 0.2; $360; 90%; 10%

Explanation:

Linear equation for consumption is as follows:

C = 40 + 0.8Y

suppose that income (Y) = $400

MPC = 0.8

Marginal propensity to save = 1 - Marginal propensity to consume

MPS = 1 - 0.8

       = 0.2

C = 40 + 0.8Y

C = 40 + 0.8 × 400

   = $360

Therefore, consumption is $360.

Average propensity to consume ( APC):

= Consumption ÷ Income level

= 360 ÷ 400

= 0.9

= 90%

We know that income is either consumed or saved, therefore,

Y = C + S

$400 = $360 + S

S = $40

Average propensity to save ( APS):

= Savings ÷ Income level

= 40 ÷ 400

= 0.1

= 10%

c.

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