(Transcript of audio with descriptions. Transcript includes narrator headings and description headings of the visual content)
(Speaker)
For this part, you need to use the table to calculate the consumption function.
(Description)
Using the table below what is the aggregate consumption function? Table shows, GDP, disposable income, YD, consumer spending, C, planned investment spending, I sub Planned, planned aggregate spending, AE sub Planned, and unplanned investment spending, I sub unplanned. Table has 6 columns labeled GDP, YD, C, I sub Planned, AE sub Planned, I sub Unplanned. There are 9 rows of data in the table. Columns have the following entries: GDP - 0, 400, 800, 1200, 1600, 2000, 2400, 2800, and 3200. YD - 0, 400, 800, 1200, 1600, 2000, 2400, 2800, and 3200. C - 100, 400, 700, 1000, 1300, 1600, 1900, 2200, and 2500. I sub planned - all equal to 300. AE sub Planned - 400, 700, 1000, 1300, 1600, 1900, 2200, 2500, and 2800. I sub Unplanned - negative 400, negative 300, negative 200, negative 100, 0, 100, 200, 300, 400. All numbers are given in billions of dollars.
(Speaker)
We are going to start by providing the general form of the consumption function, which shows the relationship between disposable income and consumption.
(Description)
The consumption function can be written as: C equals to blank billion dollars plus blank YD
(Speaker)
The first blank is called autonomous consumption, and the second blank refers to the marginal propensity to consume. Autonomous consumption refers to the level of consumption that occurs when GDP is zero dollars.
(Description)
Autonomous consumption is equal to C when disposable income is zero dollars. This refers to the first row of columns GDP, YD and C.
(Speaker)
In the table, we can see that consumption will be 100 dollars, when GDP and disposable income are zero dollars. In part A, we mentioned it was worth noting that every time GDP increased by 400 dollars, consumption increased by 300 dollars. The marginal propensity to consume is defined as the change in consumption divided by the change in disposable income. For this part we have highlighted the first two values of disposable income and consumption. As disposable income increases from zero dollars to 400 dollars, consumption increases from 100 dollars to 400 dollars. So the MPC is 400 minus 100 dollars divided by 400 minus zero dollars, or 300 dollars divided by 400 dollars, which equals 0.75.
(Description)
The marginal propensity to consume (the slope) is equal to the change in consumption divided by the change in disposable income: delta C divided by delta Y equals fraction, with 400 minus 100 in the numerator, and 400 minus 0 in the denominator, equals 300 by 400, equals 0.75. This refers to first two rows of YD and C columns.