Question

1.

Suppose disposable income is $1,000 when the average propensity to consume is 0.75. Then

Group of answer choices

the marginal propensity to consume must be 0.75.

the slope of the consumption schedule must be 0.25

the level of saving is $250.

the average propensity to save must be 0.2

2.

Which of the following is correct?

Group of answer choices

As disposable income falls, the APS rises.

As disposable income rises, the MPC falls.

As disposable income falls, the APC rises.

As disposable income rises, the MPC eventually exceeds the APC.

Answer 1

Marginal propensity to consume (MPC)

MPC=change in consumption / change in disposable income

MPS=change in saving / change in disposable income

APC=C/Yd

APS=S/Yd

When disposable income is $1,000 when the average propensity to consume is 0.75.

APC=C/Yd

0.75=C/1000

C=0.75*1000

=$750

Saving=Yd-C

=1000-750

=$250

Hence option third is the correct answer.

2.

Marginal propensity to consume (MPC)

MPC=change in consumption / change in disposable income

MPS=change in saving / change in disposable income

APC=C/Yd

APS=S/Yd

So when disposable income (Yd) falls denominator decrease, So overall fraction value will increase, therefore APS will increase.

Hence statement first is the correct answer.

Hence option first is the correct answer.