An increase in autonomous consumption will result in: a. a movement from left to right along the consumption function. b. a movement from right to left along the consumption function. c. an upward shift of the consumption function. d. a downward shift of the consumption function.
Answer (1)
The question relates to autonomous consumption and its impact on the consumption function. The consumption function is an important concept in economics that describes the relationship between consumption and disposable income.
Here's a step-by-step explanation:
Consumption Function: In economics, the consumption function is typically expressed as:
C = C 0 + c Y
where:
C is the total consumption.
C 0 represents autonomous consumption, which is the amount of consumption that occurs when income is zero.
c is the marginal propensity to consume (MPC), which is the change in consumption for a change in income.
Y is the disposable income.
Autonomous Consumption: This is the part of consumption that does not depend on income. It's what households would consume regardless of their income level. Common examples include basic needs or unavoidable expenses.
Increase in Autonomous Consumption: If C 0 , the autonomous consumption, increases, the entire consumption function shifts upward. This means that at every level of disposable income, consumption is higher.
Answer Choice: Therefore, when there's an increase in autonomous consumption, it leads to:
c. an upward shift of the consumption function.
Hence, the correct answer is an upward shift of the consumption function as it results in higher total consumption at every level of income due to increased baseline autonomous consumption.
