Question

If an upward sloping straight line consumption function makes an intercept at the Y-axis at a positive coordinate, it implies that Marginal Propensity to Consume (MPC) _______ and Average Propensity to Consume (APC) _______ as the income increases.

• A. remains constant, rises
• B. rises, rises
• C. remains constant, falls
• D. falls, falls

Hint:

For an upward sloping consumption function, MPC remains constant and APC decreases as income increases.

Answer 1

The Correct Option is B

\text{As income increases, the Marginal Propensity to Consume (MPC) typically remains constant.}
\[\text{Since the Average Propensity to Consume (APC) is calculated as } \text{APC} = \frac{C}{Y}, \text{ it decreases with increasing income. Hence, APC falls.} \] \text{But since the MPC remains constant, APC rises initially and then falls as income increases.}