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Questions and Answers
According to Keynes, which of the following equations represents the relationship between consumption and disposable income?
According to Keynes, which of the following equations represents the relationship between consumption and disposable income?
- C = f(Y) (correct)
- Y = f(C)
- Y = C
- C = Y
According to Keynes, what happens to consumption when disposable income increases?
According to Keynes, what happens to consumption when disposable income increases?
- Consumption decreases
- Consumption increases (correct)
- Cannot be determined
- Consumption remains the same
According to Keynes, how does the rate of disposable income compare to the rate of consumption?
According to Keynes, how does the rate of disposable income compare to the rate of consumption?
- Rate of disposable income is greater than the rate of consumption (correct)
- Rate of consumption is greater than the rate of disposable income
- Cannot be determined
- Rate of disposable income is equal to the rate of consumption
What is the term used to describe a person's marginal propensity to consume according to Keynes?
What is the term used to describe a person's marginal propensity to consume according to Keynes?
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According to Keynes, what does the equation C = f(Y) represent?
According to Keynes, what does the equation C = f(Y) represent?
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Study Notes
Consumption and Disposable Income
- The relationship between consumption and disposable income is represented by the equation C = f(Y), where C is consumption and Y is disposable income.
- When disposable income increases, consumption also increases, but not by as much as the increase in disposable income.
- The rate of increase in consumption is less than the rate of increase in disposable income.
- The marginal propensity to consume is the term used to describe a person's tendency to spend more as their disposable income increases.
- The equation C = f(Y) represents the functional relationship between consumption and disposable income, showing that consumption is a function of disposable income.
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