The Diagram Below Shows Desired Aggregate Expenditure for a Hypothetical

question 106

Multiple Choice

The diagram below shows desired aggregate expenditure for a hypothetical economy.Assume the following features of this economy:
∙ marginal propensity to consume (mpc) = 0.75
∙ net tax rate (t) = 0.20
∙ no foreign trade
∙ fixed price level
∙ all expenditure and income figures are in billions of dollars. FIGURE 22-2
-Refer to Figure 22-2.Which of the following correctly describes the consumption function for this economy?

• A)C = (0.6)Y_D
• B)Y = 250 + (0.75)Y_D
• C)C = 75 + (0.75)Y_D
• D)Y = 250 + (0.75)Y
• E)C = 250 + (0.6)Y

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Definitions:

Possibility Frontier

Also known as the production possibility frontier, it represents the maximum possible output combinations of two goods or services an economy can achieve with available resources and technology.

Production Possibility

The combination of goods and services that can be produced given available resources and technology, illustrating the trade-offs in production.

Linear

Describes a relationship or function that represents a straight line when graphed, indicating a constant rate of change.

Positive Economics

The branch of economics that concerns the description and explanation of economic phenomena, focusing on facts and cause-and-effect relationships without making judgments.