The figure given below represents the consumption function of a country.?Figure 9.3

-Refer to Figure 9.3. If the marginal propensity to consume is equal to 0.3, then:
A) autonomous consumption would decrease.
B) the total amount of dissaving would increase.
C) consumption spending would equal disposable income at an income level greater than $400.
D) consumption spending would equal disposable income at an income level less than $400.
E) consumption spending would equal disposable income at the income level of $400.

Question

The figure given below represents the consumption function of a country.?Figure 9.3
 
-Refer to Figure 9.3. If the marginal propensity to consume is equal to 0.3, then:
A) autonomous consumption would decrease. 
B) the total amount of dissaving would increase. 
C) consumption spending would equal disposable income at an income level greater than $400. 
D) consumption spending would equal disposable income at an income level less than $400. 
E) consumption spending would equal disposable income at the income level of $400.

Quizplus · Accepted Answer

If the marginal propensity to consume is 0.3, it means that for every additional dollar of disposable income, 30 cents will be spent on consumption. As the income level increases, so does the level of disposable income. Therefore, at an income level below $400, consumption spending will be less than disposable income, leading to saving. At an income level above $400, consumption spending will exceed disposable income, leading to dissaving. The point where consumption spending equals disposable income is where the consumption function intersects the 45-degree line, which in this case occurs at an income level less than $400. Therefore, the correct answer is (D) consumption spending would equal disposable income at an income level less than $400.

The Figure Given Below Represents the Consumption Function of a Country.?Figure