The aggregate consumption function is based on a number of assumptions. Given these assumptions, which of the following statements is true? A)The MPC is greater than zero and less than one, and the APC falls as income rises. B)The MPC and APC are always less than unity. C)As income rises, the MPC falls and the APC rises. D)Below a certain level of income, APC 1 and MPC

Question

The aggregate consumption function is based on a number of assumptions. Given these assumptions, which of the following statements is true?
A)The MPC is greater than zero and less than one, and the APC falls as income rises.
B)The MPC and APC are always less than unity.
C)As income rises, the MPC falls and the APC rises.
D)Below a certain level of income, APC > 1 and MPC < 0.
E)The APC is greater than zero and less than one, and the MPC falls as income rises.

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is typically between 0 and 1, meaning that consumers spend a portion of additional income. The average propensity to consume (APC) tends to decrease as income increases because consumption grows at a slower rate than income.

The Aggregate Consumption Function Is Based on a Number of Assumptions