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Question : The consumption function is given by C = 500 + 0.75Y. If disposable income is INR 4,000, what is the level of consumption?

Option 1: INR 3,500
  

Option 2: INR 4,500
   

Option 3: INR 6,000

  

Option 4: INR 7,500


Team Careers360 20th Jan, 2024
Answer (1)
Team Careers360 23rd Jan, 2024

Correct Answer: INR 3,500
  


Solution : The correct answer is A) INR 3,500

To find the level of consumption, we can substitute the given disposable income (Y) of INR 4,000 into the consumption function:

C = 500 + 0.75Y

  = 500 + 0.75 * INR 4,000

  = 500 + INR 3,000

  = INR 3,500

Therefore, the level of consumption when the disposable income is INR 4,000 is INR 3,500

 

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