Question : Consider the given consumption function of country X and answer the following question.
C = 100 + 0.8Y
What is the value of autonomous consumption (A) and marginal propensity to consume (MPC) in the given equation?
Option 1: A = 0.8, MPC = 100
Option 2: A = 100, MPC = 80
Option 3: A = 80, MPC = 0.10
Option 4: A = 100, MPC = 0.8
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Correct Answer: A = 100, MPC = 0.8
Solution : The correct option is A = 100, MPC = 0.8 .
In the consumption function C = 100 + 0.8Y, autonomous consumption (A) is the constant term, which is 100. The marginal propensity to consume (MPC) is the coefficient of the income term (Y), which is 0.8. This represents the proportion of additional income consumed, indicating a high consumption propensity.
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