The table below provides income and consumption data in billions of dollars: Disposable Income Consumption Savings 100 80 --- 200 150 --- What is the level of consumption when income is $300 billion? A) $200 billion B) $240 billion C) $210 billion D) $60 billion
The table below provides income and consumption data in billions of dollars:
| Disposable Income | Consumption | Savings |
| 100 | 80 | --- |
| 200 | 150 | --- |
What is the level of consumption when income is $300 billion?
A) $200 billion
B) $240 billion
C) $210 billion
D) $60 billion
The relationship between consumption, saving, and income is often represented by the basic macroeconomic identity:
Y = C + S
where Y represents income, C represents consumption, and S represents saving.
According to this identity, income is either spent on consumption (C) or saved (S). In other words, income is either used to purchase goods and services or is set aside for future use. Therefore, consumption and saving together represent the entire income of an individual or household.
When the income is $100 the consumption is $80 which is 0.8% of the total disposable income and the savings is $20.
When the income is $200 the consumption is $150 which is 0.75% of the total disposable income and the savings is $50.
This indicates that with an increase in disposable income by$100 the consumption falls by 0.05%,
Thus, when the disposable income will be $300 the consumption will 0.7% of income
This means that 300*0.7% = 2.1, which is $210 and the savings will be $90.
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