When the consumption function is expressed as C = 200 + .75(1- t)y where t =0.2, then an increase in income y by 100 will result in an increase in consumption by:

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is 0.75, and the tax rate t is 0.2. The disposable income change is (1 - 0.2) * 100 = 80. Therefore, the increase in consumption is 0.75 * 80 = 60.

When the Consumption Function Is Expressed as C = 200