If the consumption function is given by C = 500 + 0.5(Y - T), and Y is 6,000 and T is given by T = 200 + 0.2Y, then C equals:
A) 2,500.
B) 2,800.
C) 3,500.
D) 4,200.

Question

Quizplus · Accepted Answer

First, calculate T using the given formula T = 200 + 0.2Y. Substituting Y = 6000 gives T = 200 + 0.2(6000) = 200 + 1200 = 1400. Then, substitute Y = 6000 and T = 1400 into the consumption function C = 500 + 0.5(Y - T) to get C = 500 + 0.5(6000 - 1400) = 500 + 0.5(4600) = 500 + 2300 = 2800.

If the Consumption Function Is Given by C = 500