The letters Y, C, S, and I are used to represent GDP, consumption, saving, and investment respectively. The equation representing the consumption schedule for the above economy is:
A)C = Y -.6S.
B)Y = C + S.
C)C = 60 + .4Y.
D)C = 60 + .6Y.

Question

The letters Y, C, S, and I are used to represent GDP, consumption, saving, and investment respectively.  The equation representing the consumption schedule for the above economy is:
A)C = Y -.6S. 
B)Y = C + S. 
C)C = 60 + .4Y. 
D)C = 60 + .6Y.

Quizplus · Accepted Answer

The consumption schedule is represented by the equation C = 60 + .6Y. This means that consumption (C) is equal to 60 plus 0.6 times GDP (Y). This implies that as GDP increases, consumption will also increase, but not by the full amount of the increase in GDP, since there is a positive intercept (60) and a positive but less than 1 coefficient (.6) in the equation.

The Letters Y, C, S, and I Are Used to Represent