What is the effect on saving of a $1 change in total income

Reference no: EM131144165

Suppose the consumption function is given by C = a + bY_d where a and b are constants (b is the marginal propensity to consume), and Yd is disposable income, equal to Y - T. Taxes vary with income and are equal to t0 + tY where t0 and t are constants (t is the marginal tax rate).

(a) What is the effect on consumption of a $1 change in total income?

(b) What is the effect on saving of a $1 change in total income?

Reference no: EM131144165

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