As disposable income increases, how is consumption spending affected?
A) Consumption spending increases by the same amount as disposable income increases.
B) Consumption spending decreases by the same amount as disposable income increases.
C) Consumption spending increases by less than the increase in disposable income.
D) Consumption spending decreases by less than the increase in disposable income.

Question

As disposable income increases, how is consumption spending affected?  
A) Consumption spending increases by the same amount as disposable income increases. 
B) Consumption spending decreases by the same amount as disposable income increases. 
C) Consumption spending increases by less than the increase in disposable income. 
D) Consumption spending decreases by less than the increase in disposable income.

Quizplus · Accepted Answer

The relationship between disposable income and consumption spending is known as the marginal propensity to consume (MPC). As disposable income increases, consumption spending usually increases, but by a smaller proportion. This means that consumption spending increases by less than the increase in disposable income, leading to a lower MPC. Therefore, the correct answer is C.

As Disposable Income Increases, How Is Consumption Spending Affected