Which one of the following changes is consistent with a change in an economy's consumption function from C = $500 billion + 0.80Y to C = $700 billion + 0.80Y?
A) An increase in disposable income taxes.
B) An increase in interest rates
C) A decrease in permanent disposable income.
D) An increase in wealth.

Question

Quizplus · Accepted Answer

The change in the consumption function from C = $500 billion + 0.80Y to C = $700 billion + 0.80Y indicates an increase in autonomous consumption (the intercept of the consumption function). This can be attributed to an increase in wealth, as it would lead to a higher level of consumption at all income levels, without necessarily changing the marginal propensity to consume (the slope of the consumption function, which remains at 0.80 in both cases). Increases in taxes, interest rates, or a decrease in permanent disposable income would not typically result in an increase in the autonomous component of the consumption function.

Which One of the Following Changes Is Consistent with a Change