QUESTION 26 Which of the following is not true about the marginal propensity to consume? It is equal to the change in consumption divided by the change in disposable income. It is equal to the slope of the consumption function. It is equal to 1 - MPS. It is always equal to or greater than 1. A. It is equal to the change in consumption divided by the change in disposable income. B. It is equal to the slope of the consumption function. C. It is equal to 1 - MPS. D. It is always equal to or greater than 1. 6 points
QUESTION 27 Suppose the consumption function is C = $200 + 0.85YD. If disposable income is $400, consumption i
A. $200. B. $540 C. $340. D. $185.
Ans. 26. D. It is always equal to or greater than 1
1) The marginal propensity to consume is the ratio of the change in the consumption divided by the change in disposable income.
2) It is the slope of the consumption function.
3) MPC + MPS = 1 then MPC = 1 - MPS.
4) the value of the marginal propensity to consume is always equal to or less than 1 as the consumer always consume whole or less than the part of the additional disposable income.
Ans. 27. B. $540.
Consumption Function, C = $200 + 0.85 YD
Disposable Income, YD = $400, then
C = $200 + 0.85 ( $400 )
C = $540
Hence, the consumption is $540.
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