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Consider the following statements.
1. A consumption function describes the relation between consumption and income
2. The simplest consumption function assumes that consumption changes at a constant rate as income changes
Which of these statements are correct?
- a)1 Only
- b)2 Only
- c)Both of them
- d)None of them
Correct answer is option 'C'. Can you explain this answer?
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Consider the following statements. 1. A consumption function describe...
- The most important determinant of consumption demand is household income. A consumption function describes the relation between consumption and income. The simplest consumption function assumes that consumption changes at a constant rate as income changes.
- Of course, even if income is zero, some consumption still takes place. Since this level of consumption is independent of income it is called autonomous consumption. We can describe this function as: C C cY = + (4.1) The above equation is called the consumption function. households.
Most Upvoted Answer
Consider the following statements. 1. A consumption function describe...
The correct answer is option 'C' - Both of them.
The first statement is correct. A consumption function is an economic concept that describes the relationship between consumption and income. It shows how changes in income affect the level of consumption by individuals or households. The consumption function is typically represented as C = f(Y), where C is consumption and Y is income. This function helps economists understand how changes in income can lead to changes in consumption behavior.
The second statement is also correct. The simplest consumption function, known as the Keynesian consumption function, assumes that consumption changes at a constant rate as income changes. This means that for every unit increase in income, consumption also increases by a fixed amount. Mathematically, this can be expressed as C = a + bY, where C is consumption, Y is income, a is autonomous consumption (consumption when income is zero), and b is the marginal propensity to consume (the rate at which consumption changes with income).
This assumption of a constant rate of consumption change is a simplification used in basic economic models. In reality, consumption behavior is more complex and can be influenced by various factors such as savings preferences, interest rates, expectations, and income distribution. However, the Keynesian consumption function provides a starting point for understanding the relationship between consumption and income.
In summary, both statements are correct. The first statement highlights the purpose of a consumption function, which is to describe the relationship between consumption and income. The second statement describes the simplest form of a consumption function, which assumes a constant rate of consumption change as income changes.
Statement 1: A consumption function describes the relation between consumption and income
The first statement is correct. A consumption function is an economic concept that describes the relationship between consumption and income. It shows how changes in income affect the level of consumption by individuals or households. The consumption function is typically represented as C = f(Y), where C is consumption and Y is income. This function helps economists understand how changes in income can lead to changes in consumption behavior.
Statement 2: The simplest consumption function assumes that consumption changes at a constant rate as income changes
The second statement is also correct. The simplest consumption function, known as the Keynesian consumption function, assumes that consumption changes at a constant rate as income changes. This means that for every unit increase in income, consumption also increases by a fixed amount. Mathematically, this can be expressed as C = a + bY, where C is consumption, Y is income, a is autonomous consumption (consumption when income is zero), and b is the marginal propensity to consume (the rate at which consumption changes with income).
This assumption of a constant rate of consumption change is a simplification used in basic economic models. In reality, consumption behavior is more complex and can be influenced by various factors such as savings preferences, interest rates, expectations, and income distribution. However, the Keynesian consumption function provides a starting point for understanding the relationship between consumption and income.
In summary, both statements are correct. The first statement highlights the purpose of a consumption function, which is to describe the relationship between consumption and income. The second statement describes the simplest form of a consumption function, which assumes a constant rate of consumption change as income changes.
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Consider the following statements. 1. A consumption function describes the relation between consumption and income2. The simplest consumption function assumes that consumption changes at a constant rate as income changesWhich of these statements are correct?a) 1 Onlyb) 2 Onlyc) Both of themd) None of themCorrect answer is option 'C'. Can you explain this answer?
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