Which of the following statements is true concerning the consumption function?

Question

it slopes upwards

its slope equals the MPC

it represents the direct (positive) relationship between consumption spending and the level of real disposable income

all of the above

Answer 1

The correct answer is all of the above.

Here's a brief explanation for each point:

1. It slopes upwards: The consumption function typically shows a positive relationship between consumption and income, meaning that as income increases, consumption also tends to increase.

2. Its slope equals the MPC (Marginal Propensity to Consume): The slope of the consumption function represents the MPC, which is the change in consumption resulting from a change in disposable income.

3. It represents the direct (positive) relationship between consumption spending and the level of real disposable income: The consumption function illustrates how increases in real disposable income lead to increases in consumption spending.

Thus, all statements are true regarding the consumption function.