You and a coworker have been trying to develop a linear equation that describes the local household consumption function. Your coworker has sent you a very short email that simply says he has finished the project and that the consumption function is C = 100 + 0.75YD. Your job is to explain this result to your supervisor. According to this consumption function, what is the marginal propensity to consume?
A)100
B)100.
C)0.75
D)0.75.
E)4
F)4.
G)0.25.
H)0.25

Question

Quizplus · Accepted Answer

The equation given is in the form of C = a + bYD, where C is household consumption expenditure, YD is disposable income, a is autonomous consumption (consumption expenditure that does not depend on income), and b is the marginal propensity to consume (the ratio of the change in consumption expenditure to the change in disposable income). Therefore, the marginal propensity to consume in this equation is 0.75.

You and a Coworker Have Been Trying to Develop a Linear