Assume in country Y, the average marginal propensity to save is 0.2. When the aggregate income is zero, consumers spend 50 to consume. Derive the saving function and consumption function for this country. What happens to consumption when the propensity to save decreases to 0.1? Explain your answer and show this on the graph.

Assume in country Y, the average marginal propensity to save is 0.2. When the aggregate income is zero, consumers spend 50 to consume. Derive the saving function and consumption function for this country. What happens to consumption when the propensity to save decreases to 0.1? Explain your answer and show this on the graph.

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter9: Demand-side Equilibrium: Unemployment Or Inflation?

Section9.A: The Simple Algebra Of Income Determination And The Multiplier

Problem 3TY

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