The equation C = 35 + .75Y, where C is consumption and Y is disposable income, tells us that:
A)households will consume three-fourths of whatever level of disposable income they receive.
B)households will consume $35 if their disposable income is zero and will consume three-fourths of any increase in disposable income they receive.
C)there is an inverse relationship between disposable income and consumption.
D)households will save $35 if their disposable income is zero and will consume three-fourths of any increase in disposable income they receive.

Question

Quizplus · Accepted Answer

The equation C = 35 + .75Y means that consumption (C) is equal to $35 plus three-fourths (.75) of the disposable income (Y) households receive. This implies that if disposable income is zero, households will consume $35 (the fixed amount), and if their disposable income increases, they will consume three-fourths of the increase. Therefore, the best choice is B.

The Equation C = 35