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Let aggregate consumption be given by: C = 10 + 2(Y-T),
where Y is aggregate income and T is total taxes paid such that Y-T is disposable income.
Do you think this consumption function is a reasonable representation of reality? Specifically:
a) In practice, do we think that there is a linear relationship between C and (Y-T)?
b) Should the consumption function depend on the real interest rate? Why or why not?
c) Augment the given consumption function to incorporate the real interest rate.
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In the country of Mainia, GDP consists of cranberries and maple syrup. In 2000, 50 units of cranberries are sold at $10 per unit, and 100 units of maple syrup are sold at $5 per unit. If the price of cranberries was $5 per unit and the price of maple..
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