If disposable income falls by $50 billion and consumption falls by $40 billion,then the slope of the consumption function is
A)1.20.
B)0.80.
C)0.70.
D)0.10.

Question

Quizplus · Accepted Answer

The slope of the consumption function is represented by the marginal propensity to consume (MPC), which is the change in consumption divided by the change in disposable income. In this case, the change in disposable income is $50 billion and the change in consumption is $40 billion. Therefore, the MPC is ($40 billion/$50 billion) = 0.80.

If Disposable Income Falls by $50 Billion and Consumption Falls