Question

In the consumption function \[C=\bar{C}+cY\], the coefficient 'c' stands for:

Options

• Autonomous investment

• Autonomous consumption

• The equilibrium level of income

• Marginal propensity to consume (MPC)

Answer 1

In \[C=\bar{C}+cY\], 'c' is the marginal propensity to consume (MPC). Graphically, this 'c' is the slope of the consumption function, expressed as c = tan α. \(\overline{C}\) is the autonomous consumption, which is the intercept.