According to the consumption function, if the level of real disposable income increases, then
A) both the levels of consumption and savings will increase.
B) the level of consumption will increase but the level of saving will decrease.
C) the level of consumption will decrease but the level of saving will increase.
D) both the levels of consumption and savings will decrease.

Question

Quizplus · Accepted Answer

According to the consumption function, an increase in real disposable income will lead to an increase in both consumption and savings, but the increase in consumption will be less than the increase in income, resulting in an increase in savings as well. Similarly, a decrease in real disposable income will lead to a decrease in both consumption and savings. Therefore, choice A, wherein both consumption and savings increase, is the correct answer.

According to the Consumption Function, If the Level of Real