Here is a consumption function: C = C₀ + MPC(Y_d).If MPC is 0.85,then we know that A) as Y_d rises by $1,Co rises by $0.85. B) as Y_d rises by $1,C rises by $0.85. C) Y_d rises by $0.85. D) as C₀ rises by $0.85,Y_d rises by $1.

Question

Quizplus · Accepted Answer

The MPC (marginal propensity to consume) is the change in consumption (C) for every $1 change in income (Y_d). Therefore, as Y_d rises by $1, the consumption (C) will rise by MPC*$1, which is 0.85*$1 = $0.85.

Here Is a Consumption Function: C = C0 + MPC(Yd)

Here Is a Consumption Function: C = C₀ + MPC(Y_d)