Suppose that C 5 a 1 bY, where C 5 consumption, a 5 consumption at zero income, b 5 slope, and Y 5 income. LO1.8 a. Are C and Y positively related or are they negatively related? b. If graphed, would the curve for this equation slope upward or slope downward? c. Are the variables C and Y inversely related or directly related? d. What is the value of C if a 5 10, b 5 0.50, and Y 5 200? e. What is the value of Y if C 5 100, a 5 10, and b 5 0.25?

Consumption & Income are directly related, consumption function is upward sloping.

Part 1) c = 110; Part 2) y = 360

Step-by-step explanation:

Consumption Function shows the relationship between income & consumption level.

c = a + by; where c = consumption, y = income, a = autonomous consumption at 0 income, b = change in consumption with change in income (marginal propensity to consume MPC)

Consumption 'c' is positively (directly) related to income 'y', as denoted by positive MPC 'b'. Higher income implies higher consumption, lower income implies lower consumption.

As 'c' & 'y' are positively correlated, the graph is upward sloping.

c = a + by

If a = 10, b = 0.5, y = 200 : - c = 10 + 0.5 (200) = 10 + 100

c = 110

If c = 100, a = 10, b = 0.25 : - 100 = 10 + 0.25 (y) → 90 = 0.25y

y = 90 x 0.25, y = 360