Question

If a straight line consumption function makes a positive intercept at the Y-axis, and it implies that the Marginal Propensity to Consume ______ and Average Propensity to Consume ______ as the level of income rises. 

Options

• remains constant, rises

• falls, falls

• rises, rises

• remains constant, falls 

Answer 1

If a straight line consumption function makes a positive intercept at the Y-axis, and it implies that the Marginal Propensity to Consume remains constant and Average Propensity to Consume falls as the level of income rises. 

Explanation:

The consumption curve is a straight line, hence the slope (MPC) remains constant. As income levels rise in the economy, the average propensity to consume `(APC = C/Y)` decreases due to increased savings.