Assume a household would consume $100 worth of goods and services per week if its weekly income were zero and would spend an additional $80 per week for each $100 of additional income.Letting C represent consumption and Y represent income, the equation that summarizes this relationship is
A)C = 80 + 100Y.
B)C = 100 + .8Y.
C)C = 100 + 80Y.
D)C = 80 + .1Y.

Question

Quizplus · Accepted Answer

The equation C = 100 + 0.8Y represents the consumption function where $100 is the base consumption when income is zero, and for each $100 of additional income, consumption increases by $80, which is 0.8 times the additional income.

Assume a Household Would Consume $100 Worth of Goods and Services