Consumption schedule

Consumption schedule is simply a function that enables us to determine total consumption, given income and taxes.

Remember...

An economy is equilibrium when its total output (Real GDP [Y]) equals its total income.

This is why we're going to refer to total income with the variable "Y"!

C = a + MPC(Y - T)

C is total consumption for the given economy.
a is the autonomous consumption.
MPC is the marginal propensity to consume, a.k.a. how much of additional income (after taxes) do consumers spend.
Y is the total income.
T is the total taxes on income.

Scenario: Imagine Country ABC has a consumption schedule of C = 50 + 0.6(Y - T). Given that total income in Country ABC is $1,000 and total taxes are $200, find the consumption in Country ABC.

a = 50
MPC = 0.6
Y (income) = $1,000
T (taxes) = $200

C = 50 + 0.6($1,000 - $200)
C = 50 + 0.6(800)
C = 50 + 480
C = 530

Answer: The total consumption in Country ABC is $530.

Autonomous consumption

Autonomous consumption (a) is the consumption that occurs in an economy when there is no income.

You can identify it as the constant in the consumption schedule formula!

Scenario: Imagine Country ABC has a consumption schedule of C = 50 + 0.6(Y - T), and that total income is $0 (and thus, total taxes are $0). What is the autonomous consumption of Country ABC?

a = 50
MPC = 0.6
Y (income) = $0
T (taxes) = $0

C = 50 + 0.6($0 - $0)
C = 50 + 0.6(0)
C = 50 + 0
C = 50

Answer: When income is zero, Country ABC will autonomously consume $50 worth of goods and services.

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