Graph the following two consumption functions:
(1) C = 500 + 0.8 Y
(2) C = 0.8 Y
a. For each function, calculate and graph the average propensity to consume (APC) when income is $200, $500, and $1,000.
b. For each function, what happens to the APC as income rises?
c. For each function, what is the relationship between the APC and the marginal propensity to consume?
d. Under the first consumption function, a family with income of $75,000 consumes a smaller proportion of its income than a family with income of $30,000; yet if we take a dollar of income away from the rich family and give it to the poor family, total consumption by the two families does not change. Explain how this is possible.