If, in an economy, the minimum level of consumption is 45 and 80% of an increase in income (Y) is consumed, what will be the consumption function of this economy?

$45+0.80Y$

The correct answer is Option (4) → $45+0.80Y$

The general form of the consumption function is:

C=a+bY where,

• a = autonomous (minimum) consumption

• b = marginal propensity to consume (MPC)

• Y = income

Given:

• a=45

• b=0.80

  Thus, C=45+0.80Y