Here is a consumption function: C = C₀ + MPC(Y_d).Which of the following is true about the consumption function? A) Consumption will rise if autonomous consumption or disposable income rise. B) Consumption will fall if autonomous consumption falls or if the MPC rises. C) Consumption will rise if autonomous consumption rises,MPC declines,or disposable income rises. D) For every $1 rise in autonomous consumption,consumption will also rise by $1. E) a and d

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Quizplus · Accepted Answer

The consumption function given is C = autonomous consumption + MPC(disposable income), where autonomous consumption is the part of consumption independent of income, and MPC (marginal propensity to consume) is the fraction of an additional dollar of disposable income that is spent on consumption. Therefore, both statements A and D are correct: consumption will indeed rise if either autonomous consumption or disposable income increases (A), and for every $1 increase in autonomous consumption, consumption will rise by $1, reflecting the direct relationship between autonomous consumption and total consumption (D).

Here Is a Consumption Function: C = C0 + MPC(Yd)

Here Is a Consumption Function: C = C₀ + MPC(Y_d)