Suppose that the consumption function crosses the 45-degree line at a disposable income level of $800.Assume further that saving equals $200 when disposable income is $1, 300.This implies that the MPC must equal 0.6.

Question

Quizplus · Accepted Answer

The MPC (marginal propensity to consume) is the change in consumption resulting from a change in disposable income. It can be calculated as the slope of the consumption function. 
Given that the consumption function crosses the 45-degree line at a disposable income level of $800, we know that at this point, consumption equals income, so MPC must be 1. 
Furthermore, we know that when disposable income is $1,300, saving equals $200. This means that consumption at that level of income must be $1,500 ($1,300 income minus $200 saving). 
So, the change in consumption resulting from a $500 increase in disposable income (from $800 to $1,300) is $700. Therefore, the MPC is 0.6 ($700/$500). 
Thus, the statement is true, and the answer is A.

Suppose That the Consumption Function Crosses the 45-Degree Line at a Disposable