If real disposable income increases, the average propensity to save will
A) initially increase, and then decrease.
B) remain constant.
C) increase.
D) decrease.

Question

Quizplus · Accepted Answer

When real disposable income increases, individuals have more income available after accounting for inflation and taxes. This typically leads to an increase in both consumption and saving. However, the average propensity to save (APS), which is the fraction of total income that is saved, tends to increase because individuals do not usually increase their consumption proportionally to their income increase, leading to a higher rate of saving out of the total income.

If Real Disposable Income Increases, the Average Propensity to Save