When disposable income increases, consumption expenditure
A) does not change.
B) also increases, and by an equal amount.
C) also increases, and by more.
D) decreases by the same amount.
E) also increases, but by less.

Question

Quizplus · Accepted Answer

When disposable income increases, consumption expenditure also increases but by less due to the marginal propensity to consume being less than one, meaning a portion of the additional income is saved.

When Disposable Income Increases, Consumption Expenditure