Which one of the following statements is most accurate?
A) In general, consumption demand rises by less than disposable income.
B) In general, consumption demand rises by more than disposable income.
C) In general, consumption demand rises by more than income.
D) In general, consumption demand rises by the same amount as disposable income rises.
E) In general, consumption demand rises are unrelated to disposable income rises.

Question

Quizplus · Accepted Answer

The statement that "consumption demand rises by less than disposable income" is supported by the marginal propensity to consume (MPC) concept. The MPC is the fraction of an increase in income that is spent on consumption. In most cases, the MPC is less than 1, meaning that people do not spend all of their additional income and instead save some of it. Therefore, consumption demand rises by less than disposable income.

Which One of the Following Statements Is Most Accurate