Question : The consumption function is given by C = 500 + 0.75Y. If disposable income is INR 4,000, what is the level of consumption?
Option 1: INR 3,500
Option 2: INR 4,500
Option 3: INR 6,000
Option 4: INR 7,500
Correct Answer: INR 3,500
Solution : The correct answer is A) INR 3,500
To find the level of consumption, we can substitute the given disposable income (Y) of INR 4,000 into the consumption function:
C = 500 + 0.75Y
= 500 + 0.75 * INR 4,000
= 500 + INR 3,000
= INR 3,500
Therefore, the level of consumption when the disposable income is INR 4,000 is INR 3,500
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