1. Graphing the consumption function from the MPC

Consider a hypothetical economy in which the marginal propensity to consume (MPC) is 0.50. That is, if disposable income increases by $1, consumption increases by 50.

Suppose further that last year disposable income in the economy was $400 billion and consumption was $350 billion.

On the following graph, use the blue line (circle symbol) to plot this economy's consumption function based on these data.

0

100

200

300

400

500

600

700

800

700

600

500

400

300

200

100

0

-100

CONSUMPTION (Billions of dollars)

DISPOSABLE INCOME (Billions of dollars)

From the preceding data, you know that the level of savings in the economy last year wasbillionand the marginal propensity to save in this economy is.

Suppose that this year, disposable income is projected to be $600 billion. Based on your analysis, you would expect consumption to bebillionand savings to bebillion.