Reference no: EM133841672

Suppose you have following two Keynesian consumption function equations (where C is consumption, Y is income, W is wealth): Consumption Function 1: ?? = ??0 + ??1?? ⇒ ?? = 10000 + 0.75?? (1) Where ??0 = 10000; ??1 = 0.75 Consumption Function 2: ?? = ??0 + ??1?? + ??2?? 2 + ??3?? ⇒ ?? = 10000 + 0.75?? - 0.15?? 2 + 0.650?? (2) Where ??0 = 10000; ??1 = 0.75; ??2 = -0.15; ??3 = 0.65

(a) Using Consumption Function 1 (equation 1), draw the consumption function in a diagram (you should clearly label the diagram showing both axes, intercept and slope)

(b) For Consumption Function 1, find and explain the subsistence level of consumption

(c) For Consumption Function 1, find and explain the slope (??1 ) of the consumption function or marginal propensity to consume (MPC)

(d) How Consumption Function 2 (equation 2) differ from Consumption Function 1 (equation 1)

(e) For Consumption Function 2, explain the meaning of ??2 = -0.15 (f) For Consumption Function 2, explain the meaning of ??3 = 0.65.