in a simple economy (assume there are no taxes, thus y is disposable income), the consumption function is c…

in a simple economy (assume there are no taxes, thus y is disposable income), the consumption function is c = 500 + 0.75y. thus, autonomous consumption is and the marginal propensity to consume is . a consumer whose income increases by $100 will increase consumption by $ .

in a simple economy (assume there are no taxes, thus y is disposable income), the consumption function is c = 500 + 0.75y. thus, autonomous consumption is and the marginal propensity to consume is . a consumer whose income increases by $100 will increase consumption by $ .

Answer

Explanation:

Step1: Identify autonomous consumption and MPC

The consumption - function is given as $C = 500+0.75Y$. In the consumption function $C = a + bY$, where $a$ is autonomous consumption and $b$ is the marginal propensity to consume (MPC). So, autonomous consumption $a = 500$ and MPC $b=0.75$.

Step2: Calculate change in consumption

The marginal propensity to consume (MPC) is the change in consumption ($\Delta C$) divided by the change in income ($\Delta Y$), i.e., $MPC=\frac{\Delta C}{\Delta Y}$. Given $\Delta Y = 100$ and $MPC = 0.75$, we can find $\Delta C$ by re - arranging the formula: $\Delta C=MPC\times\Delta Y$. Substituting the values, $\Delta C=0.75\times100 = 75$.

Answer:

Autonomous consumption is $500$, the marginal propensity to consume is $0.75$, and the increase in consumption when income increases by $100$ is $75$.