A movement along the consumption function to higher levels of consumption expenditure arises because
A) the level of disposable income increases.
B) household wealth rises.
C) the level of disposable income decreases.
D) the level of desired saving rises.

Question

Quizplus · Accepted Answer

According to the consumption function, an increase in disposable income leads to a movement along the function to higher levels of consumption expenditure. As income increases, households have more money to spend, which leads to an increase in their consumption. Conversely, a decrease in disposable income would lead to a movement down the consumption function, and an increase in desired saving would shift the function downward. Household wealth may influence consumption through its impact on disposable income or expected income, but it is not a direct determinant of consumption expenditure in the consumption function.

A Movement Along the Consumption Function to Higher Levels of Consumption