Refer to the information provided in Figure 9.1 below to answer the questions that follow. Figure 9.1
-Refer to Figure 9.1. Suppose that the consumption function is C = 400 + 0.5Yd and taxes are $200 billion, at equilibrium, what is the value of consumption?

Question

Refer to the information provided in Figure 9.1 below to answer the questions that follow.  Figure 9.1
-Refer to Figure 9.1. Suppose that the consumption function is C = 400 + 0.5Yd and taxes are $200 billion, at equilibrium, what is the value of consumption?

Quizplus · Accepted Answer

Equilibrium occurs where production equals spending: Y = C + I + G + NX
Given that taxes are $200 billion, disposable income (Yd) would be Yd = Y - T = Y - 200
The consumption function is C = 400 + 0.5Yd
Substituting Yd = Y - 200, we get C = 400 + 0.5(Y - 200)
Rearranging the equation, we get Y = 2C + 600
Equating production to spending, we get Y = C + I + G + NX
Assuming investment, government spending and net exports add up to $1,000 billion, we get Y = C + $1,000
Substituting Y = 2C + 600, we get 2C + 600 = C + $1,000
Simplifying, we get C = $1,300 billion.

Refer to the Information Provided in Figure 9