Which of the following best represents the consumption function?
A) consumption = autonomous consumption + (the marginal propensity to consume × disposable income)
B) consumption = disposable income - (autonomous consumption / the marginal propensity to consume)
C) consumption = disposable income × (1 / 1 - the marginal propensity to consume)
D) consumption = autonomous consumption + (the marginal propensity to consume × transfer payments) / disposable income

Question

Quizplus · Accepted Answer

The consumption function represents the relationship between disposable income and consumption. It states that consumption is equal to the sum of autonomous consumption and the product of the marginal propensity to consume (the fraction of each additional dollar of disposable income that is spent) and disposable income. This is represented in choice A, where consumption equals autonomous consumption plus the marginal propensity to consume times disposable income.

Which of the Following Best Represents the Consumption Function