The consumption function relates the consumption expenditure decisions of households to
A) investment decisions of firms.
B) the level of disposable income.
C) saving decisions of households.
D) the nominal interest rate.

Question

Quizplus · Accepted Answer

The consumption function is a relationship between the level of disposable income and the consumption expenditures made by households. Therefore, option B is the correct choice as it directly relates to the consumption function. Option A is incorrect as it is related to investment decisions made by firms. Option C is partially correct, as it is related to the level of disposable income, but savings decisions of households are not directly related to the consumption function. Option D is incorrect as it is related to the nominal interest rate, which is not directly related to the consumption function.

The Consumption Function Relates the Consumption Expenditure Decisions of Households