Assume that in 2013 Molly’s autonomous consumption is $2000 and that her disposable income $45000 with an MPC of 0.7:
a. How much will Molly save in 2013?
b. How much will Molly spend on consumption in 2013?
c. Assume that in 2014 the government increases the tax Molly pays by $1000, what will her new consumption spending be?
d. Believing the tax hike to be too large, the government reduces Molly’s taxes to the 2013 level and additionally provides her with a transfer payment credit of $500. What will her new consumption spending be?