Under what conditions would the APC equal the MPC at all levels of disposable income?
A)When autonomous consumption equals 0.
B)When there is saving at very high levels of disposable income.
C)When disposable income is greater than consumption.
D)When the aggregate expenditure line is horizontal.

Question

Quizplus · Accepted Answer

The MPC is defined as the change in consumption resulting from a change in disposable income, while the APC is the ratio of consumption to disposable income. If autonomous consumption (consumption that does not depend on disposable income) is 0, then the consumption function starts at the origin (0,0), and the APC is equal to the MPC at all levels of disposable income. This is because there are no fixed costs that would lead to a non-zero level of consumption at zero income, and so the ratio of consumption to income will be linear.

Under What Conditions Would the APC Equal the MPC at All