In Keynes’ equation of absolute income hypothesis, C = α0 + by, where C = Consumption expenditure; α0 = Consumption expenditure when income (y) is zero; and b = Marginal Propensity to Consume (MPC), then which of the following statements is false ?
A. MPC is independent of the level of income.
B. MPC is dependent on the level of income.
C. APC falls as income rises.
D. APC > MPC.
Answer:B
In Keynes’ equation of absolute income hypothesis, C = α0 + by, where C = Consumption expenditure; α0 = Consumption expenditure when income (y) is zero; and b = Marginal Propensity to Consume (MPC), then which of the following statements is false ?
A. MPC is independent of the level of income. B. MPC is dependent on the level of income. C. APC falls as income rises. D. APC > MPC.