Economicsts frequenly use linear models as approximations fpr more complicated models. In Keynesian macroeconomics theory, total consumption expendiure on goods and services, C, is assumed to be a linear functions of national income, I. The table gives the values of C, and I for 1990 and 1997 in the united states.

year 1990 1997
total consumption (c) - 3839 - 5494
National Income (I) - 6650 - 4215

a. Find the formula for C as a function of I.

b. The slope of the linear function is called the marginal propensity to consume. What is the marginal propensity to consume for the United State from 1990- 1997 ?

Please recheck your numbers. The 4215 doesn't look right. It implies that consumption increased while income dropped in 1997. The number 9215 would fit a linear model much better than 4215.

those are the numbers on my paper

Check your numbers. You have total consumption rising from 90 to 97, while national income is falling

9 months ago

To find the formula for C as a function of I, we can use the two given points (C, I) and the formula for a linear function, y = mx + b.

Using the points (3839, 6650) and (5494, 4215), we can find the equation of the line:

First, calculate the slope, m:
m = (I2 - I1) / (C2 - C1)
= (4215 - 6650) / (5494 - 3839)
= -2435 / 1655
â‰ˆ -1.471

Now, let's substitute one of the points into the equation y = mx + b and solve for b:
6650 = (-1.471)(3839) + b
b = 6650 + 1.471(3839)
b â‰ˆ 6650 + 5643
b â‰ˆ 12293

Therefore, the equation for C as a function of I is given by:
C = -1.471I + 12293

To find the marginal propensity to consume (MPC) for the United States from 1990-1997, we need to determine the slope of the linear function, which is the coefficient of I in the equation.

From the equation C = -1.471I + 12293, we can see that the coefficient of I is -1.471. This value represents the MPC.

Thus, the marginal propensity to consume for the United States from 1990-1997 is approximately -1.471.