Question
Macroeconomics Question on Behavioural and technological functions
Which of the following statements is/are CORRECT in the context of the Absolute Income Hypothesis?
A
The marginal propensity to consume (MPC) is a constant
B
As income increases, the average propensity to consume (APC) tends to approach the marginal propensity to consume (MPC)
C
Average propensity to consume (APC) increases as income increases
D
Current saving/dis-saving has no bearing on future consumption
Answer
The marginal propensity to consume (MPC) is a constant
Explanation
Solution
The correct options is (A): The marginal propensity to consume (MPC) is a constant, (B): As income increases, the average propensity to consume (APC) tends to approach the marginal propensity to consume (MPC) and (D): Current saving/dis-saving has no bearing on future consumption