Refer to the information provided in Figure 24.1 below to answer the question(s) that follow. Figure 24.1
-Refer to Figure 24.1. Suppose that the consumption function is C = 400 + 0.5Yd and taxes are $200 billion, at equilibrium, what is the value of consumption?

Question

Refer to the information provided in Figure 24.1 below to answer the question(s) that follow.  Figure 24.1
-Refer to Figure 24.1. Suppose that the consumption function is C = 400 + 0.5Yd and taxes are $200 billion, at equilibrium, what is the value of consumption?

Quizplus · Accepted Answer

To find the equilibrium level of consumption, we need to first determine the level of disposable income (Yd) at equilibrium. We know that at equilibrium:

Y = C + I + G

Where Y is income, C is consumption, I is investment, and G is government spending. We also know that:

Yd = Y - T

Where T is taxes.

Substituting in the given values, we get:

Y = C + I + G

Y = 400 + 0.5Yd + I + G

T = $200 billion

Yd = Y - T

Yd = (400 + 0.5Yd + I + G) - 200

Yd = 200 + 0.5Yd + I + G

Simplifying this equation, we get:

0.5Yd = 600 + I + G

Yd = 1200 + 2I + 2G

Now, we can substitute in the consumption function:

C = 400 + 0.5Yd

C = 400 + 0.5(1200 + 2I + 2G)

C = 1000 + I + G

To find the equilibrium level of consumption, we need to set C equal to Yd:

1000 + I + G = 1200 + 2I + 2G

Simplifying this equation, we get:

I = G + 200

This equation tells us that investment is equal to government spending plus $200 billion.

Now we can plug in to find the equilibrium level of consumption:

C = 1000 + I + G

C = 1000 + (G + 200) + G

C = 1200 + 2G

Since we don't know the value of G, we cannot say exactly what the equilibrium level of consumption is. However, we do know that it is equal to $1200 plus twice the level of government spending. Therefore, the correct answer is C, $1,300.

Refer to the Information Provided in Figure 24