Question

Given a consumption function of c = $25 + 0.75yd, the average propensity to consume equals 1 when disposable income equals

Answer 1

Answer: Disposable income = $100.

Explanation:

Since we have given that

$C=\ 25+0.75Y$

And, average propensity to consume = 1

i.e. APC = 1

As we know the formula of APC ,

$APC=\frac{C}{Y}=1\\\\\implies C=Y$

So, our equation becomes,

$Y=\ 25+0.75Y\\\\Y-0.75Y=\ 25\\\\0.25Y=\ 25\\\\y=\frac{25}{0.25}\\\\Y=100$

Hence, Disposable income = $100.