Suppose the consumption function is C = $200 + 0.85Y_D.If disposable income is $400,consumption is A)$200. B)$540. C)$340. D)$185.

Question

Quizplus · Accepted Answer

Substitute Y = 400 in the given consumption function: C = $200 + 0.85(400)_D C = $200 + 340_D Since we do not have any information about the values of S1, U1, B1 and B0, we cannot simplify the consumption function any further. Therefore, the consumption is $200 + 340 times some unknown value. This means the consumption is greater than $200 but less than $540. The only option in the given choices in this range is B, $540.

Suppose the Consumption Function Is C = $200 + 0