Question

In consumption function \( C = \bar{C} + cY \), what is \( c \)?

• A. \( \frac{\Delta C}{\Delta Y} \)
• B. Minimum subsistence consumption
• C. Autonomous consumption
• D. All of these

Hint:

The marginal propensity to consume (c) is the change in consumption resulting from a change in income.

Answer 1

The Correct Option is A

Step 1: Understanding the consumption function.
The consumption function \( C = \bar{C} + cY \) represents the relationship between total consumption (C), autonomous consumption (\( \bar{C} \)), and income (Y). In this equation, \( c \) represents the marginal propensity to consume, which shows the change in consumption resulting from a change in income. This is mathematically expressed as \( \frac{\Delta C}{\Delta Y} \).

Step 2: Analyzing the options.
(A) \( \frac{\Delta C}{\Delta Y} \): Correct. This is the definition of the marginal propensity to consume, which is represented by \( c \) in the consumption function.
(B) Minimum subsistence consumption: This refers to the level of consumption that is needed to survive, but it is not represented by \( c \) in the function.
(C) Autonomous consumption: This is the consumption level that occurs even when income is zero, represented by \( \bar{C} \), not \( c \).
(D) All of these: This is incorrect, as only (A) correctly defines \( c \).

Step 3: Conclusion.
The correct answer is (A) \( \frac{\Delta C}{\Delta Y} \), as this defines the marginal propensity to consume.