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49. Disposable Income (YD) Consumption (C) $ 200 400 600 800 1,000 150 300 450 600...

49. Disposable Income (YD) Consumption (C) $ 200 400 600 800 1,000 150 300 450 600 750 900 The algebraic form of this consumption function is: C = $150 + 0.75(Yd). C = $200 + 0.8(Yd). C = $200 + 0.75(Yd). C = $150 + 0.8(Yd).

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Answer #1


The consumption when income level is zero is said to be autonomous consumption.

The consumption when income level is zero is $150.

So, the autonomous consumption is $150.

The table shows that each increase of $200 in disposable income leads to an increase in consumption by $150.

So,

MPC = Change in consumption/Change in disposable income = $150/$200 = 0.75

Consumption function is stated as follows -

C = Autonomous consumption + [MPC * Disposable Income]

C = 150 + [0.75 * Yd]

C = 150 + 0.75Yd

Thus,

The algebraic form of this consumption function is C = $150 + 0.75(Yd).

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