Answer to Question #237946 in Macroeconomics for SPG

Question

If C=400+0.8Yd Yd=Y-T T=300+0.2Y. Find MPC

Answer 1

$Given -\\ C = 400 + 0.8Yd\\ Yd = Y - T \\ T = 300 + 0.2Y$

Putting Value of T from above, 

$Yd = Y - (300 + 0.2Y)\\ Yd = Y - 300 - 0.2Y \\ Yd = 0.8Y - 300$

Putting value of Yd in C, 

$C = 400 + 0.8(0.8Y - 300) \\ C = 400 + 0.64Y - 240 \\ C = 160 + 0.64Y$

To Calculate MPC we find slope of Consumption function -

$MPC = \frac{∆C}{∆Y} = 0.64$