The consumption schedule is drawn on the assumption that as income increases, consumption will
A) be unaffected.
B) increase absolutely but remain constant as a percentage of income.
C) increase absolutely but decline as a percentage of income.
D) increase both absolutely and as a percentage of income.

Question

Quizplus · Accepted Answer

The consumption schedule is drawn on the assumption that as income increases, consumption will increase absolutely but decline as a percentage of income. This is because as people's incomes rise, they tend to save more and spend a smaller proportion of each additional dollar earned. Therefore, while total consumption may increase, the marginal propensity to consume (MPC) typically decreases as income rises.

The Consumption Schedule Is Drawn on the Assumption That as Income