  Question

# Find consumption when ¯C=100, MPC = 0.5 and Y = 2,000. Is there is greater increase in income as compared to consumption when income changes to 2,500? Consumption = 1,150 No Consumption = 1,350 Yes Consumption = 1,150 Yes Consumption = 1,350 No

Solution

## The correct option is B Consumption = 1,350 Yes We know that,                                    C=¯C+MPC(Y) When Y = 2,000,     C=100+0.5(2,000)                                 =100+1,000                                 =1,100 We also know  that,                                    Y = C + S Or,                             S = Y - C                                   = 2,000 - 1,100 = 900 ∴         Consumption = 1,100                            Saving = 900 When Y = 2,500                             C = 100 + 0.5(2,500)                                = 100 + 1,250 = 1,350              Change in C = 1,350 - 1,100 = 250              Change in Y = 2,500 - 2,000 = 500 Yes, income is greater than the increase in consumption when Y increases from 2,000 to 2,500.  Suggest corrections   