The consumption function is the relationship between
A) real consumption spending and real taxes.
B) real consumption spending and investment spending.
C) real consumption spending and real disposable income.
D) real consumption spending and real saving.

Question

Quizplus · Accepted Answer

The consumption function is a relationship between real consumption spending and real disposable income, not taxes, investment spending, or saving. It shows how changes in disposable income lead to changes in consumer spending, which is a key component of aggregate demand in the economy. This relationship is often expressed as a linear equation, such as C = a + bYd, where C is consumer spending, a is autonomous spending (which is not influenced by disposable income), b is the marginal propensity to consume (the fraction of additional disposable income that is spent), and Yd is disposable income.

The Consumption Function Is the Relationship Between