When disposable income increases,

Question

Quizplus · Accepted Answer

When disposable income increases, individuals have more money to spend on consumption goods. This leads to a movement up along the consumption function, as the level of consumption increases. The saving function is not directly affected by changes in disposable income, so choices D and E are incorrect. The consumption function may shift upward if there are changes in other factors, such as interest rates or consumer confidence, but this is not specified in the question. Therefore, choice A is the best answer.

When Disposable Income Increases