1. Consider an economy in which people consume 70 cents of each dollar of income earned; pay $150 in taxes; receive $50 in transfers from the government, and consume an additional $500 in goods and services. What is the consumption function in this economy?

2. A major part of the Coronavirus relief packages has involved higher government transfers. Let’s consider the impact of these government transfers on consumption spending.
3. (a). What is one example of a government transfer? 
4. (b). Say that the government increases transfers by $100 during a recession. How much does consumption change? 
5. (c.) Does consumption change by more or less than the increase in transfers? Why?

Answer rating: 100% (QA)

a C c0 c1 x Y TR T C 500 07 x Y 50 150 C 500 07 x ... View the full answer