The figure given below shows the consumption function of a household.
Figure 9.2

-In Figure 9.2, a decrease in disposable income would be illustrated by:
A) shifting the whole consumption function upward.
B) shifting the whole consumption function downward.
C) moving along the consumption function to the left.
D) moving along the consumption function to the right.
E) moving from point A to point D.

Question

The figure given below shows the consumption function of a household.
Figure 9.2
 
-In Figure 9.2, a decrease in disposable income would be illustrated by:
A) shifting the whole consumption function upward. 
B) shifting the whole consumption function downward. 
C) moving along the consumption function to the left. 
D) moving along the consumption function to the right. 
E) moving from point A to point D.

Quizplus · Accepted Answer

A decrease in disposable income means that the household has less money to spend, which will lead to a decrease in consumption. This will be reflected by moving along the consumption function to the left, as the household will consume less at each level of income. Shifting the whole consumption function upward or downward would imply a change in the relationship between consumption and income, which is not the case here. Moving from point A to point D would also imply a change in the level of income, rather than a decrease in income.

The Figure Given Below Shows the Consumption Function of a Household