An upward shift in the consumption function must
A) reduce equilibrium GDP.
B) be accompanied by a downward shift in the saving function.
C) reduce the value of the multiplier.
D) increase the volatility of the investment process.
E) reduce the amount of consumption at equilibrium.

Question

Quizplus · Accepted Answer

An upward shift in the consumption function implies that at each income level, consumption is higher than before. Since saving is the part of income not consumed, an increase in consumption at each income level must mean a decrease in saving at each income level, hence a downward shift in the saving function.

An Upward Shift in the Consumption Function Must