Macroeconomics + Economy 2009 Update 18th Edition by Campbell McConnell, Sean Masaki Flynn,Stanley Brue

Exercise 20

Complete the accompanying table.

Data for completing the table (top to bottom). Consumption: $244; $260; $276; $292; $308; $324; $340; $356; $372. APC: 1.02; 1.00;.99;.97;.96;.95;.94;.94;.93. APS: -.02;.00;.01;.03;.04;.05;.06;.06;.07. MPC:.80 throughout. MPS:.20 throughout.
a. Show the consumption and saving schedules graphically.
b. Find the break even level of income. Explain how is it possible for households to dissave at very low income levels.
c. If the proportion of total income consumed (APC) decreases and the proportion saved (APS) increases as income rises, explain both verbally and graphically how the MPC and MPS can be constant at various levels of income.