Respuesta :
Suppose there is an increase in taxes by $20. If the MPC equals to 0.75, consumption will decrease by $15.
Consumption function:
C = c + MPC (Y - T)
Where C is consumption
c is autthe onomous consumption
MPC is marginal propensity to consume.
Y is income
T is taxes.
C = c + MPC (Y-T)
=> C = c + 0.75 (Y-T)
Differentiate C w.r.t T
=> ΔC / ΔT = -0.75 --------------(1)
Taxes increase by $20
=> ΔT = $20 ------------------(2)
Substitute (2) in (1)
=> ΔC / ΔT = -0.75
=> ΔC / $20 = -0.75
=> ΔC = -0.75 * $20
=> ΔC = -$15
The consumption will decrease by $15 if taxes increase by $20.
Consumption function, in economics, the relationship between consumer spending and the various factors that determine it. At the household or family level, these factors may include income, wealth, expectations regarding future income or wealth levels and risks, interest rates, age, education, and family size.
Learn more about Consumption here: https://brainly.com/question/25623677
#SPJ1
