If the consumption function is below the 45- degree line, then at these levels of disposable income
A) saving is negative.
B) saving is positive.
C) saving is zero.
D) dissaving is positive.

Question

Quizplus · Accepted Answer

If the consumption function is below the 45-degree line, it means that at these levels of disposable income, people are consuming less than what they are earning. This implies that saving is positive, as the difference between income and consumption is being saved. Option A and D are incorrect as negative and positive dissaving mean the same thing, i.e., consumption is higher than income, which is not the case here. Option C is also incorrect as zero saving would mean that income and consumption are equal, which is not the case when the consumption function is below the 45-degree line.

If the Consumption Function Is Below the 45- Degree Line