-Refer to Exhibit 10-8.The consumption function is
A) C = 0.80(Yd).
B) C = $4,000 + 0.90(Yd).
C) C = $400 + 0.2(Yd).
D) C = $400 + 0.8(Yd).

Question

-Refer to Exhibit 10-8.The consumption function is
A) C = 0.80(Yd). 
B) C = $4,000 + 0.90(Yd). 
C) C = $400 + 0.2(Yd). 
D) C = $400 + 0.8(Yd).

Quizplus · Accepted Answer

The consumption function is represented by a formula that includes both a constant term and a variable term that is a proportion of disposable income (Yd). The correct option, D, C = $400 + 0.8(Yd), correctly identifies both the autonomous consumption ($400) and the marginal propensity to consume (0.8 or 80% of disposable income).

-Refer to Exhibit 10-8.The Consumption Function Is