If the equation for the consumption schedule is C = 20 + 0.8Y, where C is consumption and Y is disposable income, then the average propensity to consume is 1 when disposable income is:
A)$80
B)$100
C)$120
D)$160

Question

Quizplus · Accepted Answer

The average propensity to consume (APC) is the ratio of consumption to disposable income.

APC = C/Y

Substituting C = 20 + 0.8Y, we get:

APC = (20 + 0.8Y)/Y

APC = 20/Y + 0.8

We want APC = 1, so:

1 = 20/Y + 0.8

0.2 = 20/Y

Y = 100

Therefore, the answer is B) $100.

If the Equation for the Consumption Schedule Is C =