I. Define what component of consumption function (autonomous consumption C, marg
ID: 1144965 • Letter: I
Question
I. Define what component of consumption function (autonomous consumption C, marginal propensity to consume mpc or disposable income Yp) would change and what would happen to the consumption line in the space [consumption (C) disposable income (%)] in each of the cases listed below. Do not rewrite the tasks and put your answers in the following table omponent of the consumption function Consumption line in the LC- YD] space and the direction of the change (with brief explanation) (a) Consumers consider their job secure and therefore become more confident about the future level of the disposable ncome (b) Credit card issuers implement tighter credit standards and consumers are less able to buy goods and services on credit (c) Consumers expect the price level to increase 10% by the end of the year (d) Government increases income taxes (e) The threat of political destabilization strengthens the consumer expectations of the future lack of durable goods (f) Households decide to be thrifty and now save more from their additional income (g) Free medical care has been introduced. (h) New information appears that due to medical advances everyone can count on more years of retirement than ever before (i) The down payments required on durable goods have increased sharply (j) Consumers wealth increased by 5% (k) Mortgage credits become more advantageous for consumersExplanation / Answer
A) in consumers consider a secure income, then their consumption will increase an the sense that their mpc will increase. In such situation the consumption line will increase.
b)In the case of a tight restriction in the credit card, the consumption will decrease in the sense that mpc will decrease and hence the consumption line will decrease.
c)If consumer expects to increase the price level by the end of the year, then they will start spending now and hence consumption will increase.The consumption time will increase.
d) In the case of increase in income taxes by the government, the disposable income will decrease and hence consumption line will decline.
e)Autonomous consumption will increase as people will start buying durable goods . Increase will take place in consumption line.
f)mpc decrease and hence decrease in consumption line.
g)Autonomous consumption will decline as medicine consumption does not depend on income. Consumption line will decline.
h)mpc increase thinking that people have more years of income.Consumption line increase.
i)Consumption will decrease as people will be unable to buy if they tont have money. Consumption line will decline.
j)Increase in wealth will cause an increase in consumption and also in consumption line.
k)As mortgage credits becomes easier, people will start spending more and hence cconsumption line will increase.