Question

If the consumption function is given by C = 500 + 0.5(Y - T), and Y is 6,000 and T is given by T = 200 + 0.2Y, then C equals: A) 2,500. B) 2,800. C) 3,500. D) 4,200.

Answer 1

Answer: Option (B) is correct.

Explanation:

Given that,

Consumption function: C = 500 + 0.5(Y - T)

Y = 6,000

T = 200 + 0.2Y

T = 200 + 0.2 × 6,000

  = 1,400

C = 500 + 0.5(Y - T)

C = 500 + 0.5(6,000 - 1,400)

C = 500 + 2,300

C = 2,800