Assume in country Y, the average marginal propensity to save is 0.2. When the aggregate income is zero, consum- ers spend 50 to consume. Derive the saving function and consumption function for this country. What happens to consumption when the propensity to save decreases to 0.1? Explain your answer and show this on the graph.
Assume in country Y, the average marginal propensity to save is 0.2. When the aggregate income is zero, consum- ers spend 50 to consume. Derive the saving function and consumption function for this country. What happens to consumption when the propensity to save decreases to 0.1? Explain your answer and show this on the graph.
Chapter11: Managing Aggregate Demand: Fiscal Policy
Section: Chapter Questions
Problem 2TY
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Question
![| Assume in country Y, the average marginal propensity to
save is 0.2. When the aggregate income is zero, consum-
ers spend 50 to consume. Derive the saving function and
consumption function for this country. What happens to
consumption when the propensity to save decreases to
0.1? Explain your answer and show this on the graph.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F6e1bb562-7cf6-4d33-8479-85233017488b%2Fc2d38c58-6934-460b-a95a-8a33e60d3e9f%2Ffxs8ri_processed.jpeg&w=3840&q=75)
Transcribed Image Text:| Assume in country Y, the average marginal propensity to
save is 0.2. When the aggregate income is zero, consum-
ers spend 50 to consume. Derive the saving function and
consumption function for this country. What happens to
consumption when the propensity to save decreases to
0.1? Explain your answer and show this on the graph.
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