To substitute numerical values for variables a and b in consumption and saving equations, you first need to identify the specific equations being used. Typically, these may look like:
Consumption Equation: C = a + bY
Saving Equation: S = Y – C
Where:
– C is total consumption
– Y is total income
– a is the autonomous consumption (the consumption level when income is zero)
– b is the marginal propensity to consume (the increase in consumption resulting from an increase in income)
Now, if you have specific values for a and b, replace them directly into the equations:
For example, if a = 200 and b = 0.75, your consumption equation becomes:
C = 200 + 0.75Y
To find total savings, you would first calculate total consumption with a given income level. Let’s say Y = 1000:
C = 200 + 0.75 * 1000 = 200 + 750 = 950
Now substitute C back into the saving equation:
S = Y – C = 1000 – 950 = 50
This process showcases how to effectively substitute numerical values in economic equations to analyze consumption and savings behavior in a given economic context.