Consider a consumption function that is upward sloping but flatter than the 45- degree line. When real disposable income rises
A)desired consumption will rise and saving will fall.
B)desired consumption remains constant.
C)desired consumption will fall and saving will rise.
D)saving remains constant.
E)desired consumption and saving will both rise.

Question

Quizplus · Accepted Answer

When real disposable income rises, desired consumption increases, but since the consumption function is flatter than the 45-degree line, not all additional income is consumed, leading to an increase in saving as well.

Consider a Consumption Function That Is Upward Sloping but Flatter