Advanced Analysis) Suppose that the linear equation for consumption in a hypothetical economy is:

C = 40 + 0.8Y

Also suppose that income (Y) is $400. Determine the values for the following: MPC, MPS, C (consumption), APC, S (savings), APS

0.8; 0.2; $360; 90%; 10%

Explanation:

Linear equation for consumption is as follows:

C = 40 + 0.8Y

suppose that income (Y) = $400

MPC = 0.8

Marginal propensity to save = 1 - Marginal propensity to consume

MPS = 1 - 0.8

= 0.2

C = 40 + 0.8Y

C = 40 + 0.8 * 400

= $360

Therefore, consumption is $360.

Average propensity to consume (APC):

= Consumption : Income level

= 360 : 400

= 0.9

= 90%

We know that income is either consumed or saved, therefore,

Y = C + S

$400 = $360 + S

S = $40

Average propensity to save (APS):

= Savings : Income level

= 40 : 400

= 0.1

= 10%