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Question
Statement 1: Consumption function assumes that, consumption changes at a constant rate as income changes.
Statement 2: Autonomous consumption is the ratio of total consumption (C) to total income (Y).
In light of the given statements, choose the correct alternative from the following:
Options
Statement 1 is true, and Statement 2 is false.
Statement 1 is false, and Statement 2 is true.
Both Statements 1 and 2 are true.
Both Statements 1 and 2 are false.
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Solution
Statement 1 is true, and Statement 2 is false.
Explanation:
Statement 1 is true because the linear consumption function assumes that consumption changes at a constant rate with changes in income, represented by the Marginal Propensity to Consume (MPC). Statement 2 is false because `C/Y` is the Average Propensity to Consume (APC), whereas autonomous consumption is the consumption that occurs even when income is zero.
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