According to the consumption function, as real disposable income increases:
A) consumption will rise by the same amount as the increase in disposable income.
B) both consumption and saving will rise.
C) consumption falls but saving rises.
D) consumption rises but saving falls.

Question

Quizplus · Accepted Answer

According to the consumption function, as real disposable income increases, both consumption and saving will rise. This is because people tend to spend a portion of their additional income and save the rest, leading to increases in both consumption and saving.

According to the Consumption Function, as Real Disposable Income Increases