Question

The slope of the consumption function is the:

A) Marginal Propensity to Consume (MPC)
B) Average Propensity to Consume (APC)
C) Marginal Propensity to Save (MPS)
D) Average Propensity to Save (APS)

Answer 1

The slope of the consumption function is the Marginal Propensity to Consume (MPC), which shows how consumption changes with an increase in national income.

Step-by-step explanation:

The slope of the consumption function is the Marginal Propensity to Consume (MPC). The MPC represents the amount of an additional dollar of income that a person will consume rather than save.

It demonstrates an upward-sloping relationship between national income and consumption, where a higher MPC indicates a steeper consumption function, meaning that as national income rises, consumption expenditures increase considerably.

Conversely, a lower MPC indicates a flatter consumption function, suggesting a less direct increase in consumption expenditures with rising income. According to the Keynesian economic theory, it must always hold true that MPC plus the Marginal Propensity to Save (MPS) equals 1, as the additional dollar of income is either consumed or saved.