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 (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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Considering the consumption schedule of Country XYZ is given by C = 82 + 0.3(Y-10), what is the marginal propensity to consume?
Considering the consumption schedule of Country XYZ is given by C = 82 + 0.3(Y-10), what is the autonomous consumption?
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