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Assume that consumption is represented by the following equation: C = C0 + c1* YDIS Draw...

Assume that consumption is represented by the following equation:

C = C0 + c1* YDIS

  1. Draw this function, assuming there are no taxes.
  2. Assume that government direct transfers for the households have increased. What will be the effect on consumption? Show changes on the graph.
  3. Assume that now people are willing to consume higher proportion of their income. What will be the effect on consumption? Show changes on the graph.
  4. Now assume that consumers have to pay taxes. What will be the effect on consumption? Show changes on the graph.
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