If Sally’s consumption function is linear and her marginal
propensity to consume is 0.8, this means that
Sally’s total spending cannot
exceed 80% of her income.
Sally will spend at least 80%
of her total income.
Sally will not save money
regardless of her income.
Sally will begin to save at
the point where her marginal income is equal to
0.8.
(19)
If a household’s income increases from $50,000 to $60,000, and
as a result, its consumption...