Given the consumption function C = $500 billion + 0.80Y, an increase in disposable income from $6,000 billion to $7,000 billion will cause consumption to increase by:
A) $800 billion.
B) $1,000 billion.
C) $1,300 billion.
D) $1,500 billion.

Question

Quizplus · Accepted Answer

The consumption function is C = $500 billion + 0.80Y. The increase in disposable income (Y) from $6,000 billion to $7,000 billion is $1,000 billion. The marginal propensity to consume (MPC) is 0.80, so the increase in consumption is 0.80 * $1,000 billion = $800 billion.

Given the Consumption Function C = $500 Billion + 0