Final answer:
The consumption function shows the relationship between consumption spending and disposable income, with an upward-sloping curve that reflects the marginal propensity to consume (MPC). The correct option is c.
Step-by-step explanation:
The consumption function demonstrates the relationship between consumption spending and disposable income. This relationship is symbolized by an upward-sloping curve, depicting how consumption increases with an increase in national income. The marginal propensity to consume (MPC) is a crucial factor here, representing the fraction of additional income that is spent on consumption. Conversely, the marginal propensity to save (MPS) indicates the fraction of additional income that is saved, and it is a fact that MPC + MPS equals 1, meaning that all additional income is either consumed or saved.
Other functions, such as investment, government spending, exports, and imports, also play roles in this model but are represented differently. Investment is illustrated as a flat line because it does not vary with current national income levels in the current year. In contrast, it might fluctuate based on future expected returns. Government spending is depicted as a horizontal line, not dependent on current income levels but rather political decisions. Similarly, exports are portrayed as fixed in relation to domestic income changes but can fluctuate due to changes in foreign income and exchange rates. Lastly, imports are represented by a downward-sloping line since they increase with national income yet are considered a deduction from aggregate demand.