A decrease in people's disposable income
A) increases saving.
B) increases consumption.
C) decreases saving.
D) increases saving and decrease consumption.
E) increases investment demand.

Question

Quizplus · Accepted Answer

When people's disposable income decreases, they have less money to spend on goods and services, leading to a decrease in consumption. Since people have less money to spend, they would generally save less as well, leading to a decrease in saving (Choice C). It is unlikely that a decrease in disposable income would lead to an increase in saving (Choice A) or investment demand (Choice E). Similarly, it is unlikely that people would increase their consumption (Choice B) when they have less money to spend. While a decrease in consumption could lead to an increase in saving and decrease in consumption (Choice D), the decrease in saving is more certain, making Choice C the best answer.

A Decrease in People's Disposable Income