Other things remaining the same, if households become more frugal and decide to spend less at each level of income, then the consumption function will:
A) become less steep because the MPS rises.
B) remain unchanged but the savings function will shift downward.
C) become steeper because the MPC falls.
D) make a parallel shift downward.

Question

Quizplus · Accepted Answer

When households decide to spend less at each level of income, it means they are saving more at each level of income, leading to a decrease in consumption at all income levels. This behavior results in the consumption function making a parallel shift downward, as the entire curve shifts to reflect lower consumption at every income level without changing the slope of the function.

Other Things Remaining the Same, If Households Become More Frugal