A reduction in personal consumption expenditures induced by a fall in disposable income
A) will shift the consumption function downward.
B) will shift the saving function downward.
C) will produce an increase in intended investment.
D) will be offset by an increase in the amount saved.
E) represents a movement along a given consumption function.

Question

Quizplus · Accepted Answer

A reduction in personal consumption expenditures due to a fall in disposable income does not shift the consumption function itself but represents a movement along the existing consumption function. This is because the consumption function plots consumption against income, so a change in income leads to a movement along the curve rather than a shift of the curve.

A Reduction in Personal Consumption Expenditures Induced by a Fall