Answer to Question #251211 in Economics for Millicent

Question

Given the consumption function below C = α + βY, if β is 0.4, how can it be interpreted?

Select one:

a. Out of any additional income, Consumption increases by 4%

b. Out of any additional income, consumption increases by 40%

c. Out of any additional income, Consumption increases by 0.4%

d. Out of any additional income, Consumption increases by 60%

Answer 1

If β is 0.4, then out of any additional income, consumption increases by 40%.

So, the correct answer is b.