An increase in the marginal propensity to consume will:

• A. Lead to the consumption function becoming steeper
• B. Shift the consumption function upwards
• C. Shift the consumption function downwards
• D. Not affect the consumption function

Answer: (A)

Verified step by step guidance

1. Understand the concept of the marginal propensity to consume (MPC), which is the fraction of additional income that a household consumes rather than saves. It is a key component of the consumption function.
2. Recall the consumption function, which is typically expressed as C = a + bY, where C is consumption, a is autonomous consumption, b is the marginal propensity to consume, and Y is disposable income.
3. Recognize that an increase in the MPC (b) means that for every additional unit of income, households are consuming more than before. This affects the slope of the consumption function.
4. Analyze how the slope of the consumption function is determined by the MPC. A higher MPC results in a steeper slope because consumption increases more rapidly with income.
5. Conclude that an increase in the MPC will lead to the consumption function becoming steeper, as households are consuming a larger portion of any additional income.