Advanced Analysis)Linear equations for the consumption and saving schedules take the general formC=a+bYand savingsS= -a+ (1 -b)Y, whereC,S, andYare consumption, saving, and nationalincome, respectively. The constantarepresents the vertical intercept, andbis the slope of the consumption schedule.

a.Use the following data to determine numerical values foraandbin the consumption and saving equations:

National income. consumption

$0 $50

$100 $140

$200 $230

$300 $320

$400 $410

QUESTION:

C= ? , ? Y

S= ? , ? Y

QUESTION: What is the economic meaning ofb?

MPSor MPC?

QUESTION: What is the economic meaning of (1-b)?

MPS or MPC?

c.Suppose that the amount of saving that occurs at each level of national income falls by $20 but that the values ofband (1 -b) remain unchanged. Restate the saving and consumption equations for the new numerical values, and cite a factor that might have caused the change.

QUESTION:

C= ? , ? Y

S= ? , ? Y

QUESTION:

Which of these factors might have caused this change?

A- An increase in the value of all the major market stock indices

B- A decrease in the value of all the major market stock indices