Question

In the consumption equation c = $800 + 0.9 [income], which of the following statements is true?

1) Induced consumption is zero.
2) Induced consumption is $800.
3) Autonomous consumption is 90 percent of income.
4) Autonomous consumption is $800.

Answer 1

The consumption function c = $800 + 0.9 [income] indicates that autonomous consumption, which occurs independently of income, is $800 and not 90 percent of income. Correct answer is 4.

Step-by-step explanation:

The question pertains to the consumption function, a concept in economics, which is represented by the equation c = $800 + 0.9 [income]. Autonomous consumption is the part of consumption that does not depend on current income. It can be seen from the equation that autonomous consumption is $800.

This is because even at zero income, consumption will still be $800. The 0.9 coefficient represents the marginal propensity to consume, which indicates that for each additional dollar of income, consumption increases by 90 cents. Hence, the correct statement regarding the given equation is that autonomous consumption is $800.