Question

To represent the consumption function through algebra, it would be expressed as___. A)C=a + MPC*Y, where a is autonimous consumption(the amount of consumption expenditure when Y=0), MPC is the marginal propensity to consume, and Y is national income. B)MPC + MPS = 1, where a MPC is the marginal propensity to consume and MOS is the marginal propensity to save. C) C= a+ MPS*Y,where a is a autonimous consumption( the amount of consumption expenditure when Y= 0), MPS is the marginal propensity to save, and Y is national income

Answer 1

Consumption function describes the relation between income and consumption by a consumer. Consumption refers to the quantity of goods and services a person buys. We expect it to be one of direct proportionality. As income increases, the quantity of goods and services bought by a consumer also increases.

Consumption function can be written as

C = Co + cY

where C is consumption,

Y is income

Co is autonomous consumption i.e. minimum level of consumption when income is zero.

c is marginal propensity to consume. It indicates how much consumption changes in relation to a given change in income.

(A) part is a correct answer