Which of the following statements are NOT true?
(A) The most important determinant of consumption demand is household income.
(B) A consumption function describes the relation between autonomous consumption and income.
(C) The simplest consumption function assumes that consumption changes at a constant rate as income changes.
(D) The consumption function consists of two components, autonomous consumption and induced consumption.
(E) If consumption takes place even when income is zero, it is because of induced consumption.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (B) and (E) only
(A) The most important determinant of consumption demand is household income. — True. Household income is the most important determinant of consumption.
(B) A consumption function describes the relation between autonomous consumption and income. — False. A consumption function relates consumption (all of it) to income. Autonomous consumption does not depend on income.
(C) The simplest consumption function assumes that consumption changes at a constant rate as income changes. — True. The simplest form takes a constant MPC.
(D) The consumption function consists of two components, autonomous consumption and induced consumption. — True. C = C̄ + cY: an autonomous part and an induced part.
(E) If consumption takes place even when income is zero, it is because of induced consumption. — False. Consumption at zero income is autonomous consumption; induced consumption cY is zero then.
NCERT (2026-27): “4.1.1 Consumption The most important determinant of consumption demand is household income. A consumption function describes the relation between consumption and income. The simplest consumption function assumes that consumption changes at a constant rate as income changes. Of course, even if income is zero, some consumption still takes place. Since this level of consumption is independent of income, it is called autonomous consumption. …” “4.1.1 Consumption The above equation is called the consumption function. Here C is the consumption expenditure by households. This consists of two components autonomous consumption and induced consumption (cY ). Autonomous consumption is denoted by C̄ and shows the consumption which is independent of income. If consumption takes place even when income is zero, it is because of autonomous consumption. The induced component of consumption, cY shows the dependence of consumption on income. …” |