in an economy and initial increase in investment lead to an equal increase in income comment on the shape of the consumption curve .
Dear Student,
Consumption Function = C + bY
where , c = Autonomous Consumption
b = MPC
Y = Income
And , we have to assume that MPC is 1 because MPC + MPS = 1
(It means that our whole of income goes to consumption.)
Initial Increase in Investment leads to increase in Income . As, MPC is 1 so that whole of the income goes to consumption. it will leads to increase in consumption amd consumption curve will shifts to upward.(This means consumers are spending a higher percentage of their income.)
Regards.
Consumption Function = C + bY
where , c = Autonomous Consumption
b = MPC
Y = Income
And , we have to assume that MPC is 1 because MPC + MPS = 1
(It means that our whole of income goes to consumption.)
Initial Increase in Investment leads to increase in Income . As, MPC is 1 so that whole of the income goes to consumption. it will leads to increase in consumption amd consumption curve will shifts to upward.(This means consumers are spending a higher percentage of their income.)
Regards.