Question

?______ remains constant as disposable income either rises or falls. ? _____ will? __________ as disposable...

?______ remains constant as disposable income either rises or falls. ? _____ will? __________ as disposable income increases.
A.
?APC; MPC; increase
B.
?MPC; APC; increase
C.
?APC; MPC; decrease
D.
?MPC; APC; decrease
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Answer #1

The MPC or marginal prpensity to consume refers to the ratio of change in consumption expenditure to change in total income and is calculated as follows: Change in consumption / Change in Income

The APC or average propensity to consume refers to the ratio of sonsumption expenditure to the corresponding level of income and is calculated as follows: Consumption / Income

Here, the correct answer is D) because as Mpc remains constant, the APC decreases with increase in income because the proportion spent on consumption keeps decreasing with increase in income.

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