ECONOMICS
CONSUMERS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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An increase in the national income per capita
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If more income was redistributed from weather households to poorer households
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Greater concern about the nation’s economic future
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The government reduced tax on interest earned in savings accounts
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Detailed explanation-1: -Average propensity to consume is decreasing Since autonomous consumption in positive (Ca>0), the ratio of APC falls with increase in disposable income because with increase in income the proportion of consumption expenditures is decreasing as it creates smaller part of income.
Detailed explanation-2: -Marginal Propensity to Consume or MPC is dependent on the income level. It may vary with the income levels and it can be seen that the MPC is lower at higher income levels. MPC can be calculated by determining the change in consumption divided by the change in income.
Detailed explanation-3: -For every increase in income, consumption increases by the MPC times that increase in income. Thus, the slope of the consumption function is the MPC. Second, at low levels of income, consumption is greater than income.
Detailed explanation-4: -Propensity to consume depends on various factors such as price level, interest rate, stock of wealth and other subjective factors. The average propensity to consume is a relationship between total consumption and total income in a given period of time.