An economy's consumption function is depicted in the table below.
n econoDisposable Income (Yd)($ billions): 0, 120, 240, 360, 480, 600
Planned Investment($ billions): 20, 20, 20, 20, 20, 20
Consumption (C)($ billions): 100, 208, 316, 424, 532, 640
a. When disposable income is equal to $240 billion total expenditures (including investment) equal
A.
$316
billion.
B.
$20
billion.
C.
$336
billion.
D.
$240
billion.
The correct answer is D. $240 billion.
explain
In this case, the total expenditures, which includes consumption and investment, equal the disposable income of $240 billion. According to the information given in the table, when the disposable income is $240 billion, the consumption is $316 billion and the investment is $20 billion. Thus, the total expenditures become $316 billion + $20 billion = $336 billion. However, the question asks for the total expenditures, including investment, so the correct answer would be $240 billion.
the answer is 336. We know that Yd = C + S in the simple model. Thus, Yd - C = S.
You are correct. I apologize for the error in my previous response. The correct answer is C. $336 billion.
The formula Yd - C = S represents the savings in the economy. In this case, the disposable income (Yd) is $240 billion and the consumption (C) is $316 billion. By subtracting the consumption from the disposable income, we get $240 billion - $316 billion = -$76 billion, indicating a negative savings.
To find the total expenditures, including investment, we need to add the investment of $20 billion to the consumption. Therefore, the total expenditures become $316 billion + $20 billion = $336 billion.
b. Therefore, in this model when investment is included, when the disposable income is $240
billion, saving must be equal to
In the given model, when the disposable income is $240 billion and the consumption is $316 billion, we can calculate the savings by subtracting the consumption from the disposable income: $240 billion - $316 billion = -$76 billion.
Since the result is negative, it means that the economy is not saving but rather dissaving. In other words, the economy is spending more than its income, resulting in a negative savings amount.
Therefore, in this model, when the disposable income is $240 billion and investment is included, the savings would be -$76 billion.
c. When disposable income is equal to $240billion total planned expenditures equal
To determine the total planned expenditures when the disposable income is $240 billion, we need to add together the consumption and investment.
According to the table, the consumption when the disposable income is $240 billion is $316 billion, and the investment is $20 billion.
Total planned expenditures = Consumption + Investment
Total planned expenditures = $316 billion + $20 billion
Total planned expenditures = $336 billion.
Therefore, when the disposable income is $240 billion, the total planned expenditures equal $336 billion.
To determine when total expenditures (including investment) equal $240 billion, we need to find the corresponding level of disposable income for that expenditure level.
From the table, the disposable incomes are given as $0 billion, $120 billion, $240 billion, $360 billion, $480 billion, and $600 billion.
And the corresponding consumption levels are $100 billion, $208 billion, $316 billion, $424 billion, $532 billion, and $640 billion.
To find the level of disposable income when total expenditures equal $240 billion, we look for the corresponding consumption level.
In this case, when total expenditures equal $240 billion, the consumption level is $316 billion.
Therefore, the answer is option A. $316 billion.