What is the general format of the consumption function? Explain what each term means and use the consumption function to explain the three different ways that consumption can increase
The general consumption formula is: C = Co + MPC(Yd). Co is autonomous consumption, which is the part of consumption that is independent of the level of income. It does not change as disposable income changes. MPC is the marginal propensity to consume and it represents the portion of a change in income that is spent. Yd is the symbol for disposable income. This equation shows that consumption can change as a result of a change in autonomous consumption, a change in the marginal propensity to consume, or a change in disposable income. Consumption will rise when any one of these three variables rises.
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