Table of contents

1. Introduction to Macroeconomics1h 57m
2. Introductory Economic Models59m
3. Supply and Demand3h 43m
4. Elasticity2h 26m
5. Consumer and Producer Surplus; Price Ceilings and Price Floors3h 40m
6. Introduction to Taxes1h 25m
7. Externalities1h 3m
8. The Types of Goods1h 13m
9. International Trade1h 16m
10. Introducing Economic Concepts49m
11. Gross Domestic Product (GDP) and Consumer Price Index (CPI)1h 37m
12. Unemployment and Inflation1h 15m
13. Productivity and Economic Growth1h 17m
14. The Financial System1h 37m
15. Income and Consumption52m
16. Deriving the Aggregate Expenditures Model1h 22m
17. Aggregate Demand and Aggregate Supply Analysis1h 18m
18. The Monetary System1h 1m
19. Monetary Policy1h 32m
20. Fiscal Policy1h 0m
21. Revisiting Inflation, Unemployment, and Policy46m
22. Balance of Payments30m
23. Exchange Rates1h 16m
24. Macroeconomic Schools of Thought40m
25. Dynamic AD/AS Model35m
26. Special Topics11m

15. Income and Consumption

The Consumption Function

Macroeconomics

15. Income and Consumption

The Consumption Function

Previous problem

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Multiple Choice

An increase in the marginal propensity to consume will:

Lead to the consumption function becoming steeper

Shift the consumption function upwards

Shift the consumption function downwards

Not affect the consumption function

Previous problem

Verified step by step guidance

Understand the concept of the marginal propensity to consume (MPC), which is the fraction of additional income that a household consumes rather than saves. It is a key component of the consumption function.

Recall the consumption function, which is typically expressed as C = a + bY, where C is consumption, a is autonomous consumption, b is the marginal propensity to consume, and Y is disposable income.

Recognize that an increase in the MPC (b) means that for every additional unit of income, households are consuming more than before. This affects the slope of the consumption function.

Analyze how the slope of the consumption function is determined by the MPC. A higher MPC results in a steeper slope because consumption increases more rapidly with income.

Conclude that an increase in the MPC will lead to the consumption function becoming steeper, as households are consuming a larger portion of any additional income.