The consumption function has a slope less than one because:
A)as disposable income increases, the real rate of interest will decline.
B)saving and consumption are equal at all levels of income.
C)as disposable income increases, consumption expenditures increase by an amount less than the increase in income.
D)as disposable income increases, consumption expenditures increase by an amount greater than the increase in income.

Question

Quizplus · Accepted Answer

The slope of the consumption function is the marginal propensity to consume (MPC), which is less than one because as disposable income increases, people tend to save a portion of the additional income, leading to a smaller increase in consumption compared to the increase in income.

The Consumption Function Has a Slope Less Than One Because