Multiple Choice
If the Keynesian consumption function is C = 10 + 0.8 Yd then, when disposable income is \$1000, what is the average propensity to consume?
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14. Income and Consumption
Average Propensity to Consume and Save
Multiple Choice
If the Keynesian consumption function is C = 10 + 0.8 Yd then, when disposable income is \$1000, what is the marginal propensity to save?
A
0.8
B
0.81
C
0.19
D
0.2
E
Cannot be determined
Verified step by step guidance1
Understand the Keynesian consumption function: C = 10 + 0.8Yd, where C is consumption and Yd is disposable income.
Identify the marginal propensity to consume (MPC) from the consumption function, which is the coefficient of Yd. Here, MPC = 0.8.
Recall that the marginal propensity to save (MPS) is related to MPC by the equation: MPS = 1 - MPC.
Substitute the value of MPC into the equation: MPS = 1 - 0.8.
Calculate the MPS to find the marginal propensity to save.
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