If C₀ is $2 trillion, C_y is .8, the tax rate is .10, and the level of national income is $15 trillion, consumption spending would equal A) $14 trillion. B) $12 trillion. C) $12.8 trillion. D) $10.8 trillion.

Question

Quizplus · Accepted Answer

The consumption function is given as C₀, which translates to C = 2 + 0.8Y, where C is consumption and Y is national income. Given that the national income (Y) is $15 trillion, we substitute Y with 15 in the equation: C = 2 + 0.8(15) = 2 + 12 = $14 trillion. However, the question asks for consumption spending after tax, so we need to calculate disposable income first. With a tax rate of 0.10, disposable income is 90% of $15 trillion, which is $13.5 trillion. Substituting this value into the consumption function: C = 2 + 0.8(13.5) = 2 + 10.8 = $12.8 trillion.

If C0 Is $2 Trillion, Cy Is

If C₀ Is $2 Trillion, C_y Is