Identify the correct statement with respect to consumption and saving function.
A)Both the consumption function and the saving function have negative slopes.
B)As disposable income declines, consumption and saving increase.
C)The consumption function has a negative slope while the saving function has a positive slope.
D)As disposable income rises, consumption and saving increase.
E)The consumption function has a positive slope while the saving function has a negative slope.

Question

Quizplus · Accepted Answer

The correct statement is that "As disposable income rises, consumption and saving increase." This means that both the consumption function and the saving function have a positive slope, as individuals tend to spend and save more as their income increases. Option A is incorrect because the saving function has a positive slope, and option B is incorrect because consumption and saving do not necessarily increase as disposable income declines. Option C is incorrect because it reverses the slopes of the consumption and saving functions. Option E is also incorrect for the same reason as option C.

Identify the Correct Statement with Respect to Consumption and Saving