(Advanced analysis) The equation C = 35 + 0.75Y, where C is consumption and Y is disposable income, shows 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 shows that consumption (C) is equal to $35 plus three-fourths of disposable income (Y). This means that households will consume $35 if their disposable income is zero (since 0.75 multiplied by zero is still zero) and will consume three-fourths of any increase in disposable income they receive. This is the best choice because it accurately reflects the relationship between consumption and disposable income in the equation given. A is not a correct choice because it implies that households will always consume three-fourths of any level of disposable income, which is not necessarily true. C is also incorrect because the equation does not show an inverse relationship between consumption and disposable income. Finally, D is incorrect because the equation shows that households will consume (not save) $35 if their disposable income is zero.

(Advanced Analysis) the Equation C = 35 + 0