The consumption function relates
A)a household's consumption to its wealth.
B)planned household consumption to real disposable income.
C)planned household consumption and real interest rates.
D)real disposable incomes earned by households with the level of consumption credit desired in the economy.

Question

Quizplus · Accepted Answer

The consumption function relates planned household consumption (consumption that is intended or desired) to real disposable income (income after taxes and transfers that is available for spending). It is typically represented as C = a + bY, where C is consumption, Y is real disposable income, a is autonomous consumption (consumption that occurs regardless of income level), and b is the marginal propensity to consume (the fraction of each additional dollar of income that is spent on consumption). The consumption function is a key component of macroeconomic models, as it helps to explain how changes in income and other variables affect aggregate demand and economic growth.

The Consumption Function Relates