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What is the relationship between consumption and income in the consumption function?
- a)Consumption is independent of income.
- b)Consumption decreases as income increases.
- c)Consumption increases as income increases.
- d)Consumption is inversely proportional to income.
Correct answer is option 'C'. Can you explain this answer?
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What is the relationship between consumption and income in the consump...
Understanding the Consumption Function
Consumption function is a key concept in economics that illustrates the relationship between consumer spending and income levels.
Key Relationship
- Consumption increases as income increases. This is the fundamental principle of the consumption function.
- As individuals earn more income, they are generally able to spend more on goods and services.
Marginal Propensity to Consume (MPC)
- The consumption function can be expressed mathematically as:
- C = a + bY
- Where:
- C = total consumption
- a = autonomous consumption (consumption when income is zero)
- b = marginal propensity to consume (the fraction of additional income that is consumed)
- Y = income
- The MPC indicates that a portion of additional income will be spent on consumption.
Implications of the Consumption Function
- Economic Growth: Higher consumption leads to increased demand for goods and services, stimulating economic growth.
- Policy Making: Understanding this relationship helps policymakers design effective fiscal policies to influence economic activity.
Conclusion
In summary, option 'C' is correct because consumption tends to rise as income increases. This behavior is essential in understanding consumer behavior and overall economic dynamics.
Consumption function is a key concept in economics that illustrates the relationship between consumer spending and income levels.
Key Relationship
- Consumption increases as income increases. This is the fundamental principle of the consumption function.
- As individuals earn more income, they are generally able to spend more on goods and services.
Marginal Propensity to Consume (MPC)
- The consumption function can be expressed mathematically as:
- C = a + bY
- Where:
- C = total consumption
- a = autonomous consumption (consumption when income is zero)
- b = marginal propensity to consume (the fraction of additional income that is consumed)
- Y = income
- The MPC indicates that a portion of additional income will be spent on consumption.
Implications of the Consumption Function
- Economic Growth: Higher consumption leads to increased demand for goods and services, stimulating economic growth.
- Policy Making: Understanding this relationship helps policymakers design effective fiscal policies to influence economic activity.
Conclusion
In summary, option 'C' is correct because consumption tends to rise as income increases. This behavior is essential in understanding consumer behavior and overall economic dynamics.
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What is the relationship between consumption and income in the consump...
In the consumption function, consumption increases as income increases. This is the basic relationship indicating how individuals' spending behavior changes with their income levels.
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What is the relationship between consumption and income in the consumption function?a)Consumption is independent of income.b)Consumption decreases as income increases.c)Consumption increases as income increases.d)Consumption is inversely proportional to income.Correct answer is option 'C'. Can you explain this answer?
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