Answer to Question #211709 in Economics for Paballo

Question

The equation C = 70 + 0,65Y, where C is consumption and Y is disposable income, tells us

that …

[1] households will save R70 if their disposable income is zero and will consume 0,65 of

any increase in disposable income they receive.

[2] households will consume R70 if their disposable income is zero and will consume 0,65

of any increase in disposable income they receive.

[3] households earn R70 and spend three quarters of their income.

[4] households will consume 0,35 of whatever level of disposable income they receive.

Answer 1

The equation C = 70 + 0,65Y means that households will consume R70 if their disposable income is zero (this amount is fixed for any level of income) and will consume 0.65 of any increase in disposable income they receive, because 0.35 of any positive income will be saved.

So, the correct answer is [2].