Consider a consumption function that is upward sloping but flatter than the 45-degree line.When real disposable income rises,
A)desired consumption will fall and saving will rise.
B)desired consumption will rise and saving will fall.
C)desired consumption and saving will both rise.
D)desired consumption remains constant.
E)saving remains constant.

Question

Quizplus · Accepted Answer

Given a consumption function that is upward sloping but flatter than the 45-degree line, when real disposable income increases, both desired consumption and saving will rise. This is because the consumption function being upward sloping indicates that as income increases, consumption increases, but at a rate slower than the increase in income (since it's flatter than the 45-degree line, which represents equal increases in consumption and income), allowing for savings to increase as well.

Consider a Consumption Function That Is Upward Sloping but Flatter