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Assume that: Disposable income = $2,000, Autonomous consumption = $500, and the marginal propensity to consume = 80%.

What is the level of total consumption?

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Final answer:

Total consumption is calculated by adding autonomous consumption to the product of the marginal propensity to consume and disposable income. With an autonomous consumption of $500 and a marginal propensity to consume of 0.8 on a disposable income of $2,000, the total consumption would be $2,100.

Step-by-step explanation:

When given that the disposable income is $2,000, autonomous consumption is $500, and the marginal propensity to consume is 80% or 0.8, we can calculate the total level of consumption using the formula for the consumption function.

The consumption function is a formula used to compute the total consumption in an economy or by an individual given a certain amount of disposable income.

The formula is: Consumption = Autonomous Consumption + (Marginal Propensity to Consume × Disposable Income).

So, the level of total consumption would be:

$500 (autonomous consumption) + (0.8 × $2,000)

= $500 + $1,600

= $2,100.

This means that out of a disposable income of $2,000, the individual will spend $2,100 on consumption, which includes autonomous consumption and consumption out of the additional income based on the marginal propensity to consume.

User JimSan
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