Suppose the consumption function is C = $300 million + 0.90YD, where disposable

Question

Suppose the consumption function is C = $300 million + 0.90YD, where disposable income YD = Y – T, and T represents lump sum taxes. Suppose equilibrium output Y is $4,000 million and taxes (T) are $200 million. In this case disposable income is $______ million, consumption is $ _____million, and saving is $____ million. If income taxes increase by $20 million then disposable income will decrease by $____ million and consumption will decrease by $______ million. Enter whole numbers in each blank.

Explanation / Answer

In this case disposable income is $__(4000 - 200) = 3800____ million, consumption is $ __3720___million, and saving is $___280_ million. If income taxes increase by $20 million then disposable income will decrease by $__3780__ million and consumption will decrease by $__3702____ million. Enter whole numbers in each blank.

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