Question

Read the following statements carefully: 
Statement 1: A consumption function describes the relationship between consumption and savings. 
Statement 2: Consumption function consists of two components---autonomous consumption and induced consumption. 
In the 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.

Hint:

The consumption function shows the relationship between income and consumption, not savings.

Answer 1

The Correct Option is B

Statement 1: This is false because the consumption function describes the relationship between consumption and income, not savings. Statement 2: This is true because the consumption function consists of two components: {Autonomous Consumption:} The minimum level of consumption that occurs even when income is zero. {Induced Consumption:} The component of consumption that varies with changes in income.