Question

Economicsts frequenly use linear models as approximations fpr more complicated models. In Keynesian macroeconomics theory, total consumption expendiure on goods and services, C, is assumed to be a linear functions of national income, I. The table gives the values of C, and I for 1990 and 1997 in the united states.

year 1990 1997
total consumption (c) - 3839 - 5494
National Income (I) - 6650 - 4215

a. Find the formula for C as a function of I.


b. The slope of the linear function is called the marginal propensity to consume. What is the marginal propensity to consume for the United State from 1990- 1997 ?

Please recheck your numbers. The 4215 doesn't look right. It implies that consumption increased while income dropped in 1997. The number 9215 would fit a linear model much better than 4215.

those are the numbers on my paper

Check your numbers. You have total consumption rising from 90 to 97, while national income is falling