Question : The consumption function is given by C = 800 + 0.6Y. If disposable income is INR 5,000, what is the level of consumption?
Option 1: INR 3,800
Option 2: INR 4,600
Option 3: INR 5,800
Option 4: INR 6,600
Correct Answer: INR 3,800
Solution : The correct answer is (A) INR 3,800.
To find the level of consumption, we can substitute the given value of disposable income (Y) into the consumption function.
Given: C = 800 + 0.6Y
Disposable income (Y) = INR 5,000
Substituting the value of Y into the consumption function, we get:
C = 800 + 0.6 * 5000
C = 800 + 3000
C = 3800
Therefore, the level of consumption is INR 3,800.
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