Table 9.1 $$\begin{array} { | l | c | } \hline \begin{array} { c } \text { Disposable Income } \ \text { (Billions of dollars per year) } \end{array} & \begin{array} { c } \text { Total Consumption } \ \text { (Billions of dollars per year) } \end{array} \ \hline \text { \$0 } & \$ 50 \ \hline 200 & 210 \ \hline \end{array}$$ Which of the following represents the consumption function consistent with the data in Table 9.1? A)C = $160 billion + 0.91Y_D. B)C = $160 billion + 0.80Y_D. C)C = $50 billion + 0.76Y_D. D)C = $50 billion + 0.80Y_D.

Question

Quizplus · Accepted Answer

The consumption function can be determined by finding the autonomous consumption (consumption when income is 0, which is $50 billion) and the marginal propensity to consume (MPC), which is the change in consumption divided by the change in income. From the table, when income increases from $0 to $200 billion, consumption increases from $50 to $210 billion, a change of $160 billion in consumption for a $200 billion change in income, giving an MPC of 0.80 ($160/$200). Thus, the correct consumption function is C = $50 billion + 0.80Y.

Table 91 Which of the Following Represents the Consumption Function Consistent with \hline

Table 91 Which of the Following Represents the Consumption Function Consistent with
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