If income increases by $100 and saving increases by $25,the slope of the consumption function equals _____.
A)1/4
B)1/5
C)1/2
D)3/4
E)3/5

Question

Quizplus · Accepted Answer

The slope of the consumption function represents the marginal propensity to consume (MPC), which is the change in consumption over the change in income. In this case, the change in income is $100 and the change in saving is $25, so the change in consumption is $75 ($100-$25). Therefore, the MPC is 0.75 or 3/4. The slope of the consumption function is equal to the MPC, so the answer is D) 3/4.

If Income Increases by $100 and Saving Increases by $25,the