The consumption function is based on a number of assumptions.Given these assumptions,which of the following statements is true? A)Below a certain level of income,APC 1 and MPC

Question

The consumption function is based on a number of assumptions.Given these assumptions,which of the following statements is true?
A)Below a certain level of income,APC > 1 and MPC < 0.
B)The MPC and APC are always less than unity.
C)As income rises,the MPC falls and the APC rises.
D)The MPC is greater than zero and less than one,and the APC falls as income rises.
E)The APC is greater than zero and less than one,and the MPC falls as income rises.

Quizplus · Accepted Answer

The consumption function assumes that the MPC is greater than zero and less than one, meaning that as income rises, consumption will also rise but at a slower rate. The APC, on the other hand, falls as income rises since people tend to save more at higher income levels. Therefore, D is the correct choice. A, B, and E are incorrect because they do not accurately reflect the assumptions of the consumption function. C is also incorrect because it suggests that the MPC falls as income rises, which is not true according to the consumption function.

The Consumption Function Is Based on a Number of Assumptions