Linear equations for the consumption and saving schedules take the general from C = a + bY and S = - a + (1-b)Y, where C,S, and Y are consumption, saving, and national income, respectively. The constant a represents the vertical intercept, and b represents the slope of the consumption schedule.
a. Use the following data to substitute numerical values for a and b in the consumption and saving equations.
National Income (Y) Consumption (C)
$0 $80
100 140
200 200
300 260
400 320
b. What is the economic meaning of b? Of (1-b)?
c. Supposed that the amount of saving that occurs at each level of national income falls by $20 but that the values of b and (1-b) remain unchanged. Restate the saving and consumption equations inserting the new numerical values, and cite a factor that might have caused the change.