The parameter ‘b’ in a consumption function of the form; c = a + bY;
The parameter ‘b’ in a consumption function of the form; c = a + bY; where Y is the National Income is
- A) Marginal benefit of consumption
- B) Marginal propensity to purchase
- C) Marginal propensity to consume
- D) Marginal propensity to save
Correct Answer: C) Marginal propensity to consume
Explanation
The question is asking about a consumption function that calculates how much people will spend on goods and services based on their income. The function is in the form c = a + bY, where c is the amount spent, a is a constant, Y is the national income, and b is a parameter that we need to identify.
We are given four options to choose from, and we need to select the correct one. Option A is the marginal benefit of consumption, option B is the marginal propensity to purchase, option C is the marginal propensity to consume, and option D is the marginal propensity to save.
The correct answer is option C, the marginal propensity to consume. This parameter represents the proportion of additional income that people will spend on consumption. In other words, it shows how much of a change in income will result in a change in spending.
It is important to note that the marginal propensity to save is the opposite of the marginal propensity to consume. It represents the proportion of additional income that people will save instead of spending.
Understanding these concepts is important for analyzing the impact of changes in income on consumption and saving patterns, which can have significant effects on the overall economy.