Here Is a Consumption Function: C = C₀ + MPC(Y_d)

question 42

Multiple Choice

Here is a consumption function: C = C₀ + MPC(Y_d) .If C₀ = $200,then we know that

• A) if Y_d is zero,C will be $200.
• B) when Y_d rises,C rises by $200.
• C) when Y_d falls,C falls by MPC times C₀.
• D) C will always equal C_0.

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Definitions:

Labor Supply Curve

A graphical representation showing the relationship between the wage rate and the quantity of labor that workers are willing to supply.

Substitution Effect

The change in consumption patterns due to a change in relative prices, leading consumers to replace more expensive items with cheaper alternatives.

Income Effect

The change in an individual's or economy's income and how that change will affect the quantity demanded of a good or service.

Substitution Effect

The change in consumption patterns due to a change in the relative prices of goods, making consumers substitute one good for another.