International Economics: Consumption Function and Business Cycles

Running head: INTERNATIONAL ECONOMICS
International Economics
Individual Assessment
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2INTERNATIONAL ECONOMICS
Table of Contents
Answer 1..........................................................................................................................................3
1a)....................................................................................................................................................3
1b)....................................................................................................................................................4
Answer 2..........................................................................................................................................5
2a)....................................................................................................................................................5
2b)....................................................................................................................................................7
References:......................................................................................................................................9

3INTERNATIONAL ECONOMICS
Answer 1
The consumption function refers to relationship of level of income and consumption of
commodity. When the income rises so does the consumption of the individual. Mathematically,
equation is represented as C =a+ bYd. a is the autonomous consumption and b represents the
functional relationship and slope of consumption function as marginal propensity to consume.
MPC is given by dc/dY (Change in consumption/ change in level of income) (Keynes, 2018).
Also, a is the minimum consumption attained by the consumption at zero level of income.
1a)
Figure 1: Consumption Function
At point A the level of disposable income and consumption would be same as per table 1.