Question

Calculate the levels of consumption at different levels of income, if consumption is worth ₹200 when income is zero, MPC is 0.8, and income 100, 200, 300, 400, 500.

Answer 1

We shall dene the consumption function equation as C = a + MPC.Y where ‘a’ is autonomous consumption.

Income	MPC	Consumption
0	0.8	200
100	0.8	200 + (0.8)100 = 280
200	0.8	200 + (0.8)200 = 360
300	0.8	200 + (0.8)300 = 440
400	0.8	200 + (0.8)400 = 520
500	0.8	200 + (0.8)500 = 600