Given a consumption function of C = $25 + 0.75Y_D,the average propensity to consume equals 1 when disposable income equals A)$25. B)$75. C)$100. D)-$300.

Question

Quizplus · Accepted Answer

The average propensity to consume (APC) is equal to consumption (C) divided by disposable income (Yd). When APC = 1, C = Yd.

Setting APC = 1, we get:

1 = (25 + 0.75Yd) / Yd

Multiplying both sides by Yd:

Yd = 25 + 0.75Yd

Solving for Yd:

0.25Yd = 25

Yd = 100

Therefore, the answer is choice C, $100.

Given a Consumption Function of C = $25 + 0