Answer to Question #169339 in Macroeconomics for ayiza

Question

The income expected to be received next year rises from $50,000 to $54,200. What will be consumption and saving if they were previously $21200 each

Answer 1

Solution:

Let:

Y₁ = Income in period 1 = 50,000

Y₂ = Income in period 2 = 54,200

C₁ = Consumption in period 1 = 21,200

S₁ = Savings in period 1   = 21,200

C₂ = Consumption in period 2?

S₂ = Savings in period 2?

Therefore:

C₂ = Y₂ + S₁ = 54,200 + 21,200 = $75,400

The consumption will be = $75,400

 

S₂ = Y₁ – C₁ = 50,000 – 21,200 = $28,800

The savings will be = $28,800