Assume that the consumption function is given by C = 150 + 0.85(Y - T) and the tax function is given by T = t + t Y. If 0 1
T increases by 1 unit, then consumption:
0
A)decreases by 0.85 units.
B)decreases by 0.15 units.
C)increases by 0.15 units.D.increases by 0.85 units.

Question

Quizplus · Accepted Answer

When T increases by 1 unit, disposable income (Y - T) decreases by 1 unit, leading to a decrease in consumption by 0.85 units due to the marginal propensity to consume of 0.85.

Assume That the Consumption Function Is Given by C =