You are given the following information about an economy. Autonomous consumption expenditure is $40 billion, investment is $200 billion, and government expenditure is $250 billion. The marginal propensity to consume is 0.7 and net taxes are $250 billion. Net taxes are assumed to be constant and not vary with income. Exports are $500 billion and imports are $450 billion. The consumption function in billions of dollars is ________.

Question

Quizplus · Accepted Answer

The consumption function is C = 40 + 0.7(Y - 250) because autonomous consumption expenditure is $40 billion, the marginal propensity to consume is 0.7, and net taxes are $250 billion.

You Are Given the Following Information About an Economy