John Maynard Keynes believed that the average propensity to consume:

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Question restatement: John Maynard Keynes believed that the average propensity to consume:

Option a: 'is constant.' This claim would imply that people always spend a fixed proportion of their income, regardless of how much they earn. In Keynesian analysis, the marginal propensity to consume (MPC) and average propensity to consume (APC) are not typically considered constant across different income levels, since spending patterns shift as income changes. Therefore, this option misrepresents the typical Keynesian perspective.

Option b: 'is less than the marginal propensity to consume.' Here, the statement asserts APC < MPC, which conflicts with standard relationships. By definition, APC equals consumption divided by income, while MPC is the change in consumption with respect to a change in income. While they can relate differently at different income levels, APC is not inherently always less than MPC; in many contexts APC can be greater or smaller depending on the income range and behavior. This makes the blanket claim unreliable.

Option c: 'increases as income increases.' This would imply that people devote a larger share of each additional dollar of income to consumption as income grows. In Keynesian framework, the MPC tends to be less than 1 and can be relatively stable or even decline with income, while APC typically falls as income rises because people save a greater fraction at higher incomes. Thus, APC is not generally rising with income, making this option inconsistent with common Keynesian intuition.

Option d: 'decreases as income increases.' This aligns with the classic Keynesian relationship where, as income grows, households tend to save a larger portion of additional income, causing the average propensity to consume (APC) to fall over higher income ranges. In many Keynesian illustrations, APC = C(Y)/Y declines as Y increases because C grows but not proportionally to Y, reflecting higher savings at higher income levels. This option matches the conventional interpretation of APC behavior in Keynesian analysis.

Summary of reasoning across options: We evaluate traditional Keynesian ideas about consumption behavior: APC is typically not constant and tends to fall as income rises, especially as saving increases at higher income levels. The statement that APC decreases with income captures that tendency, whereas the other options either claim constant behavior or describe patterns contrary to the usual APC-MPC relationships or common income-consumption dynamics.

Additional nuance: It is important to distinguish APC from MPC. APC considers the share of total income currently spent on consumption, while MPC concerns the change in consumption from a change in income. Their relative magnitudes can vary, but the established Keynesian view often highlights the tendency for APC to decline as income grows due to rising saving rates at higher income levels.

105A Ch 20 (Consumption) Homework

John Maynard Keynes believed that the average propensity to consume:

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