Question

Complete the statements and then calculate the change in consumption.

a. The consumption function shows the relationship between consumption spending and ____________
b. The slope of the consumption function is the ___________
c. Changes in consumption can be predicted by multiplying the change in by the If the MPC ___________

Answer 1

Answer:

A. Disposable income

B. Marginal Propensity to Consume

C. Change in Disposable Income by the Marginal Propensity to Consume.

Explanation:

The consumption will increase by $800

Explanation:

The consumption function shows the relationship between consumption spending and disposable income.

The slope of the consumption function is the marginal propensity to consume.

Changes in consumption can be predicted by multiplying the change in disposable income by the marginal propensity to consume.

GIVEN that: MPC = 0.60

Disposable income increases by $1,500

consumption increase = 0.60*$1500

= $900

Therefore, The consumption will increase by $900.