Question

The marginal propensity to consume is 0.5, aggregate autonomous consumption is $10,000, and aggregate disposable income is $40,000. If disposable income is expected to increase, the aggregate consumption function might take the form of:

Answer 1

D) C= 12,000 + (40,000 x 0.5)

Step-by-step explanation:

the current aggregate consumption function is C = 10,000 + (40,000 x 0.5)

• aggregate autonomous consumption = 10,000
• aggregate disposable income x 0.5 (MPC)

if the aggregate autonomous consumption increases, then the function would be:

• C = 11,000 + (40,000 x 0.5)
• C = 12,000 + (40,000 x 0.5)
• C = 13,000 + (40,000 x 0.5)
• C = 14,000 + (40,000 x 0.5)
• etc...

So the only possible option is D