4. advanced analysis Linear equations for the consumption and saving schedules take the general form C = a + bY and S = − a + (1 − b)Y, where C, S, and Y are consumption, saving, and national income, respectively. The constant a represents the vertical intercept, and b represents the slope of the consumption schedule. LO10.1, LO10.2

a. Use the following data to substitute numerical values for a and b in the consumption and saving equations.

b. What is the economic meaning of b? Of (1 − b)?

c. Suppose that the amount of saving that occurs at each level of national income falls by $20 but that the values of b and (1 −

b) remain unchanged. Restate the saving and consumption equations inserting the new numerical values, and cite a factor that might have caused the change.

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National Income (Y) $ 0 100 Consumption (C) $ 80 140 200 200 300 260 400 320