Following is consumption schedules for three private closed economies.DI signifies disposable income and C represents consumption expenditures.All figures are in billions of dollars. Refer to the above data.At an income level of $40 billion, the average propensity to consume:
A)is highest in economy (1).
B)is highest in economy (2).
C)is highest in economy (3).
D)cannot be determined from the data given.

Question

Following is consumption schedules for three private closed economies.DI signifies disposable income and C represents consumption expenditures.All figures are in billions of dollars.  Refer to the above data.At an income level of $40 billion, the average propensity to consume:
A)is highest in economy (1). 
B)is highest in economy (2). 
C)is highest in economy (3). 
D)cannot be determined from the data given.

Quizplus · Accepted Answer

At an income level of $40 billion, the consumption expenditure in economy (1) is $32 billion, in economy (2) is $44 billion, and in economy (3) is $40 billion. 
Therefore, average propensity to consume (APC) can be calculated as:
APC = C/DI
For economy (1): APC = 32/40 = 0.8
For economy (2): APC = 44/60 = 0.73
For economy (3): APC = 40/50 = 0.8
Thus, the highest APC is in economy (1) and economy (3), but since economy (3) has the same APC as economy (1), the best choice is (B) as it has the highest APC among the three economies at an income level of $40 billion.

Following Is Consumption Schedules for Three Private Closed Economies