Multiple Choice
If the Keynesian consumption function is C = 10 + 0.8 Yd then, when disposable income is \$1000, what is the marginal propensity to consume?
15. Income and Consumption
The Consumption Function
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If the Keynesian consumption function is C = 10 + 0.8 Yd then, if disposable income is \$1000, what is amount of total consumption?
A
\$0.80
B
\$800
C
\$810
D
\$0.81
E
Cannot be determined
Verified step by step guidance1
Identify the Keynesian consumption function given in the problem: C = 10 + 0.8Yd, where C is total consumption and Yd is disposable income.
Substitute the given disposable income (Yd = \$1000) into the consumption function.
Calculate the consumption by multiplying the marginal propensity to consume (0.8) by the disposable income (\$1000).
Add the autonomous consumption (10) to the result from the previous step to find the total consumption.
Interpret the result to understand that the total consumption is the sum of autonomous consumption and the portion of disposable income spent on consumption.
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