Question

The consumption function is given by \[C=\bar{C}+cY\]. What does \(\overline{C}\) denote?

Options

• Marginal propensity to consume (MPC)

• Total consumption at equilibrium income

• Autonomous consumption (autonomous expenditure on consumption)

• The slope of the consumption function

Answer 1

In the consumption function \[C=\bar{C}+cY\], the term \(\overline{C}\) represents autonomous consumption, i.e., autonomous expenditure on consumption, which is independent of income. The term 'c' is the marginal propensity to consume (MPC), which is the slope of the function.