Question

If the consumption function is C = $200 billion + 0.5Y, Note: some values are in 'trillions' and others are in 'billions'. (

Answer 1

Answer: The marginal propensity to consume (MPC) in the given equation is 0.5.

The formula above is in slope intercept form. The MPC is like the slope of the equation. It gives the change in consumption, C, over the change in income, Y.

For example, if we let Y = 1, then the consumption will go from 200 to 200.5. It was a change of 0.5 over 1. Or just 0.5.