Generalized linear consumption function | Macroeconomics | Khan Academy

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Generalizing a linear consumption function as a function of aggregate income
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[@yuvrajbhandari3993]

me: captain jacksparrow what do you say
jack: 11:08

[@shivadevkota602]

At time 10:38, why you have assume Co-c1T as a constant? When you have zero income you are not going to pay any taxes and when you have variable income the taxes amount will change so does C1T component !

[@princeemo4800]

In economics, either the person will make a loan because taxes are payable nontheless or they will sell their assets for that income to occur. Depending on the laws of that particular country, the revenue services(taxmen) will seize those assets themselves. Its only in the case, I believe when someone is within the poverty line where they are not taxed but again, its dependent on that country's laws. Hoped it helped! Remember Economics is an assumption and study based on models of the activities in the economy and its outcomes. So it is also assumed that even if there's no income, taxes must still be paid.

[@01username001]

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[@kevalvichare4759]

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[@oldJimmyWales]

Income taxes are a function of individual income. Y is aggregate income.

[@bhavyadhingra2997]

Nice

[@iam774526]

why is tax constant here?

[@redioactiv]

Why don't we subtract as well autonomous income from aggregate income to find the disposable income?

[@Darius1295]

Consumption function for Margaret Thatcher's poll tax.

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[@zebaali2529]

Hi I have a doubt, how can Marginal propensity to consume *taxes ie C1 *T is constant, because as income increases , our tax amount increases(even if tax rate is constant ) and hence that portion(that you are calling constant ) would increase right ?

[@MrTugwit]

Khan Academy, you're talking nonsense.
At 3:24 you have the equation:
C = Co + c1 (Disposable income)
C = Co + c1 Yd
where you say c1 is the marginal propensity to consume [mpc].
That's nonsense.
The marginal propensity to consume, uses INCREMENTS of consumption and disposable income:
ΔC/ΔYd = mpc
ΔC = mpc ΔYd
It's the average propensity to consume, that uses consumption and disposable income:
C/Yd = apc
C = apc Yd
Your consumption function does NOT use increments, it uses consumption and disposable income:
C = apc Yd
C = Co + c1 Yd
therefore c1 is the AVERAGE propensity to consume: C/Yd
C = Co + c1 Yd
C = Co + (C/Yd) Yd
C = Co + C
0 = Co
Your consumption function actually says:
C = C
and Co must equal zero.
Anybody knows that the MARGINAL propensity to consume
applies to an increment of disposable income: ΔYd
NOT to disposable income: Yd

[@ibrahim9296]

i completely agree with nilsor1337

[@2leet2cheet]

Your trying to complicate an already complicated equation. Why?