Refer to the information provided in Figure 8.4 below to answer the questions that follow. Figure 8.4
-Refer to Figure 8.4.Suppose the consumption function for C1 = 20 + 0.5Y,the consumption function that best fits C3 is
A)C3 = 20 + 0.8Y.
B)C3 = 20 + 0.4Y.
C)C3 = 40 + 0.5Y.
D)C3 = 40 + 0.4Y.

Question

Refer to the information provided in Figure 8.4 below to answer the questions that follow.  Figure 8.4
-Refer to Figure 8.4.Suppose the consumption function for C1 = 20 + 0.5Y,the consumption function that best fits C3 is
A)C3 = 20 + 0.8Y. 
B)C3 = 20 + 0.4Y. 
C)C3 = 40 + 0.5Y. 
D)C3 = 40 + 0.4Y.

Quizplus · Accepted Answer

The consumption function for C3 is C3 = 20 + 0.8Y. This is because the slope of the consumption function for C3 is 0.8, which is greater than the slope of the consumption function for C1 (0.5). This means that the marginal propensity to consume (MPC) for C3 is greater than the MPC for C1.

Refer to the Information Provided in Figure 8