Over short period, when in-come rises, average propensity to consume usually

Options

A. (a)rises
B. (b)falls
C. (c)remains constant
D. (d)fluctuates

Answer

B

Explanation

Keynes postulated that aggragate consumption is a function of aggregate current disposable income. The Keynesian consumption function is written as : `C = a + cY a > 0, 0 < c < 1`, where a is the intercept, a constant which measures consumption at a zero level of disposal income, c is the marginal propensity to consume (MPC) , and Y is the disposal income. So as income increases, average propensity to consum (APC = C/Y) falls.