Question

What is the value of \( c \) in consumption function \( C = \overline{C} + cY \)?

• A. More than zero
• B. Equal to one
• C. Less than one
• D. All of these

Hint:

The marginal propensity to consume (\( c \)) is typically between 0 and 1, representing the proportion of income spent on consumption.

Answer 1

The Correct Option is D

Step 1: Understanding the consumption function.
The consumption function is given as \( C = \overline{C} + cY \), where \( \overline{C} \) is autonomous consumption and \( c \) is the marginal propensity to consume (MPC). The value of \( c \) represents the fraction of additional income that is consumed. Typically, \( c \) is a positive value less than one, but it can be greater than zero, equal to one, or less than one depending on the economic conditions.

Step 2: Analyzing the options.
(A) More than zero: This is true as the marginal propensity to consume is always greater than zero.
(B) Equal to one: This is also true. If \( c = 1 \), then all additional income is consumed.
(C) Less than one: This is true in most cases, as the marginal propensity to consume is typically less than one.
(D) All of these: Correct. \( c \) can be greater than zero, equal to one, or less than one, depending on the situation.

Step 3: Conclusion.
The correct answer is (D) All of these, as \( c \) can take any value greater than zero, equal to one, or less than one.