When the consumption function lies below the 45° line, households
A)spend all of any increase in disposable income.
B)consume more than their disposable income.
C)are saving some portion of their disposable income.
D)save all of any increase in disposable income.
E)are dissaving.

Question

Quizplus · Accepted Answer

When the consumption function lies below the 45° line, it means that households are saving some portion of their disposable income. This is because their consumption expenditure is lower than their disposable income, leaving some part of it (the difference between disposable income and consumption) as saving.

When the Consumption Function Lies Below the 45° Line, Households