The consumption function will shift downward when
A) the rate of interest decreases.
B) household saving decreases.
C) real disposable income increases.
D) household wealth decreases.

Question

Quizplus · Accepted Answer

When household wealth decreases, there is generally a decrease in their willingness to spend. As a result, the consumption function shifts downward. This is because households have fewer resources to spend, and may need to save more in order to rebuild their wealth. The other options would generally cause an upward shift in the consumption function.

The Consumption Function Will Shift Downward When