When we graph consumption as a function of national income rather than as a function of ________,the slope of this consumption function is the ________.
A)disposable income; MPC
B)personal income; MPC
C)disposable income; MPS
D)personal income; MPS

Question

Quizplus · Accepted Answer

When we graph consumption as a function of national income, we are looking at the relationship between how much people spend (consumption) and how much a country is producing (national income). The slope of this consumption function is the MPC (marginal propensity to consume), which represents the change in consumption for every one unit change in disposable income. Disposable income is used because it takes into account taxes and other factors that affect how much money people have to spend. Therefore, option A is the correct choice.

When We Graph Consumption as a Function of National Income