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QUESTION 21 Figure: Production Function 1 Output Output 600.... 500 》 400 Investment 50 Capital Reference: Ref 8-2 (28-2) Figure: Production Function 1) Refer to the figure. In this diagram of the Solow model, if output is 600, consumption equals: A. 400 B. 200 C. 600 D. 50.

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Answer #1

Solow model assumes closed economy and no government interference:

Y = C + I

Y = 600 and I = 400

C = 600 - 400 = 200 (option B is correct)

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