Question

Consumption function `C=4141+0.78Y` was estimated by the UK during the period 1949-1975. What is the marginal propensity to consume during the period?

Answer 1

Marginal propensity to consume during the period was `0.78`.

Explanation:

The consumption function `C=4141+0.78Y`, which was estimated for the UK during the period 1949-1975, means that during the period while for an average consumer with no or zero income (i.e. `Y=0`) annual consumption `C` was `£4141`. for each additional income of `£1`, consumer spent `£0.78`.

Hence, the marginal propensity to consume during the period was `0.78`.