Question

Read the following statements carefully: 
Statement 1: A consumption function describes the relationship between consumption and savings. 
Statement 2: Consumption function consists of two components—autonomous consumption and induced consumption.

• A. Statement 1 is true and Statement 2 is false.
• B. Statement 1 is false and Statement 2 is true.
• C. Both Statements 1 and 2 are true.
• D. Both Statements 1 and 2 are false.

Hint:

The consumption function reflects the relationship between consumption and income, not savings.

Answer 1

The Correct Option is B

Statement 1 is false because the consumption function describes the relationship between consumption and income, not savings. 
Statement 2 is true because the consumption function has two components: autonomous consumption (independent of income) and induced consumption (dependent on income).