Question

Read the following statements carefully: Statement 1: Consumpti on function assumes that, consumption changes at a constant rate as income changes. Statement 2: Autonomous consumption is the ratio of total consumption (C) to total income (Y). In light of the given statements, choose the correct alternative from the following: a) Statement 1 is true and Statement 2 is false. b) Statement 1 is false and Statement 2 is true. c) Both Statements 1 and 2 are true. d) Both Statements 1 and 2 are false.

Answer 1

b) Statement 1 is false and Statement 2 is true.

Explanation:

• Statement 1 is false because the consumption function does not necessarily assume that consumption changes at a constant rate as income changes. In fact, there are different theories and models of consumption behavior, such as the Keynesian consumption function, which suggests that consumption may not change at a constant rate with income changes.
• Statement 2 is true. Autonomous consumption refers to the part of consumption that is independent of income. It is typically represented as a fixed amount or a constant in economic models, and it is not directly proportional to total income.