1. 3. Suppose that the relation between consumption and income is C = 90 +

0.75Y.

a. For each additional euro that households receive, how much do they save? How much do they spend?

b. What is the level of consumption when income is equal to 0?

360? 500? 600? (You may want to make a table similar to Table 9.2 in the text.)

c. What is the level of saving when income is equal to 0? 360?

500? 600?

d. As income rises from 500 to 600, by how much does consumption rise? What formula would you use to derive the mpc from your answer to this question if you did not know the mpc already?

e. Graph this consumption function, along with a 45°

“consumption = income” line. Label the slope and intercept, and show how the level of savings when income is equal to 600 can be found on this graph.