1. Suppose that the marginal propensity to consume is 0.8. If disposable income increases by $0.5 trillion, by how much will consumption expenditure change?

2. Explain how each of the following events influences the U.S. consumption function:

• The marginal propensity to consume decreases.

• U.S. autonomous consumption decreases.

• Americans expect an increase in future income.

3. Figure 1 shows the consumption function. What is the marginal propensity to consume, and what is autonomous consumption?

Transcribed Image Text:

FIGURE 1 Consumption expenditure (billions of 2009 dollars) 320 240 160 80 0 100 200 400 300 Disposable income (billions of 2009 dollars)