Consider the aggregate consumption function in a simple macro model with no taxes. At the level of national income where APC = 1, the nation's households are
A)saving a portion of their income, but saving is less than consumption.
B)saving all of their disposable income.
C)consuming all of their disposable income.
D)allocating their income equally between saving and consumption.
E)spending more than their current income.

Question

Quizplus · Accepted Answer

When APC (average propensity to consume) is 1, it means that the households are consuming all of their disposable income and not saving any of it. Therefore, the answer is C - consuming all of their disposable income.

Consider the Aggregate Consumption Function in a Simple Macro Model