Both the PIH and the LCH predict that
A)total consumption may rise as a fraction of income when actual income rises due to the upsurge in purchases of consumer durables.
B)the saving ratio will fall with higher income when consumer durables are counted as consumption expenditure.
C)the saving ratio will fall with higher income when consumer durables are counted as saving.
D)A and B are both correct.

Question

Quizplus · Accepted Answer

Both the PIH and LCH predict that when actual income rises, there may be an upsurge in the purchases of consumer durables, which are counted as consumption expenditure, leading to an increase in total consumption as a fraction of income, which is option A. Additionally, they predict that the inclusion of consumer durables in consumption expenditure may lead to a fall in the saving ratio with higher income, as stated in option B. Therefore, both option A and B are correct, making the answer D.

Both the PIH and the LCH Predict That