Question

Suppose the consumption function of the US economy is C = 10 + 0.8Y, when Y is total output or income. What is the amount of consumption (in millions) when total output or income (Y) equals to 0 and when total output or income (Y) equals to 10, respectively?

A. $18 million and $10 million
B. $8 million and $1 million
C. $1 million and $8 million
D. $10 million and $18 million

Answer 1

The consumption function is C = 10 + 0.8Y. The amount of consumption is $10 million when total output is 0 and $18 million when total output is 10.

Step-by-step explanation:

The consumption function is given as C = 10 + 0.8Y, where Y represents total output or income. To find the amount of consumption, we substitute the values of Y into the equation.

When Y equals 0:

C = 10 + 0.8(0) = 10

So, the amount of consumption is $10 million when total output or income is 0.

When Y equals 10:

C = 10 + 0.8(10) = 10 + 8 = 18

So, the amount of consumption is $18 million when total output or income is 10. Therefore, the correct answer is D. $10 million and $18 million.