The marginal propensity to consume is 0.5, aggregate autonomous consumption is $10,000, and aggregate disposable income is $40,000. If disposable income is expected to increase, the aggregate consumption function might take the form of:

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3 April, 04:42

The marginal propensity to consume is 0.5, aggregate autonomous consumption is $10,000, and aggregate disposable income is $40,000. If disposable income is expected to increase, the aggregate consumption function might take the form of:

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Alanna Brennan · Answer 1

D) C = 12,000 + (40,000 x 0.5)

Explanation:

the current aggregate consumption function is C = 10,000 + (40,000 x 0.5)

aggregate autonomous consumption = 10,000 aggregate disposable income x 0.5 (MPC)

if the aggregate autonomous consumption increases, then the function would be:

C = 11,000 + (40,000 x 0.5) C = 12,000 + (40,000 x 0.5) C = 13,000 + (40,000 x 0.5) C = 14,000 + (40,000 x 0.5) etc ...

So the only possible option is D