The positive slope of the consumption function indicates that
A) when prices fall consumers spend more.
B) consumers spend less out of each extra dollar of income.
C) consumers increase their total consumption expenditure when disposable income increases.
D) the amount of household wealth is subject to change.

Question

Quizplus · Accepted Answer

The positive slope of the consumption function indicates that consumers increase their total consumption expenditure when disposable income increases. As income increases, consumers tend to spend more on goods and services, resulting in a positive slope of the consumption function. Option A is incorrect because lower prices may lead to more purchasing power, but it is not directly related to the positive slope of the consumption function. Option B is incorrect because a negative slope would indicate that consumers spend less out of each extra dollar of income. Option D is incorrect because the amount of household wealth is not directly related to the slope of the consumption function.

The Positive Slope of the Consumption Function Indicates That