Here is a consumption function: C = C₀ + MPC(Y_d).If MPC is 0.80,then we know that A) as Y_d rises by $1,Co rises by $0.80. B) as Y_d rises by $1,C rises by $0.80. C) Y_d rises by $0.80. D) as C₀ rises by $0.80,Y_d rises by $1.

Question

Quizplus · Accepted Answer

The MPC (marginal propensity to consume) is the slope of the consumption function, which indicates how much of an increase in income will be spent on consumption. In this case, the MPC is 0.80, which means that for every $1 increase in Y_d, consumption (C) will increase by $0.80. Therefore, as Y_d rises by $1, C will rise by $0.80.

Here Is a Consumption Function: C = C0 + MPC(Yd)

Here Is a Consumption Function: C = C₀ + MPC(Y_d)