Suppose when real disposable income is $5000, planned real consumption is $4000. When real disposable income increases to $6000, planned real saving increases by $500. The new planned real consumption expenditures is
A) $5,000.
B) $4,500.
C) $6,000.
D) $3,500.

Question

Quizplus · Accepted Answer

Planned real saving = Planned real consumption - Real disposable income

When real disposable income = $5000, planned real consumption = $4000
So, Planned real saving = $4000 - $5000 = -$1000

When real disposable income increases to $6000, planned real saving increases by $500.
So, the new planned real saving is:
Planned real saving = -$1000 + $500 = -$500

Now, we can use the equation of national income accounting:
Y = C + S
where Y is real disposable income, C is planned real consumption, and S is planned real saving.

When Y = $5000, C = $4000, and S = -$1000
When Y = $6000, C = ?, and S = -$500

Thus, 
$6000 = C - $500
C = $6500

Therefore, the new planned real consumption expenditures is $6500 - which is choice letter B.

Suppose When Real Disposable Income Is $5000, Planned Real Consumption