Question

Given a consumption function of c = $25 + 0.75yd, the average propensity to consume equals 1 when disposable income equals

Answer 1

Answer: Disposable income = $100.

Step-by-step explanation:

Since we have given that

`C=\$25+0.75Y`

And, average propensity to consume = 1

i.e. APC = 1

As we know the formula of APC ,

`APC=(C)/(Y)=1\\\\\implies C=Y`

So, our equation becomes,

`Y=\$25+0.75Y\\\\Y-0.75Y=\$25\\\\0.25Y=\$25\\\\y=(25)/(0.25)\\\\Y=100`

Hence, Disposable income = $100.