ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Marginal propensity to consume determines the slope of this curve. As disposable income increases from left to right it is modified by the MPC. A high MPC of 0.9 would lead to a steep curve. A lower MPC would mean a more gradual slope.

Detailed explanation-2: -Typically, the higher the income, the lower the MPC because as income increases more of a person’s wants and needs become satisfied; as a result, they save more instead.

Detailed explanation-3: -A high MPC indicates that the proportion of increased income spent on goods and services approached the actual amount of that increase. Conversely, a low MPC means an individual spent less of that increase in income and instead, put the money into savings.

Detailed explanation-4: -An increase in taxes will shift both the consumption schedule and the saving schedule down. A rightward shift of the investment demand curve might be caused by:-an increase in the price level.

Detailed explanation-5: -Its value is less than unity since the rate of increase in consumption (dt) is less than the rate of increase in income (ft). As CC’ is a straight line, MPC remains constant at all levels of income. Though MPC remains constant as income rises, APC continuously declines on a straight line consumption function.