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Chapter 5: Problem 22

As a nation's income falls, induced consumption (LO5) a) rises b) falls c) remains the same

Short Answer

Expert verified
As a nation's income falls, induced consumption also falls due to less disposable income for consumers. Therefore, the correct answer is (b) induced consumption falls.

Step by step solution

01

Understand the concepts

Induced consumption refers to the portion of consumption that varies directly with disposable income. As disposable income increases or decreases, so does induced consumption.
02

Consider the relation between a nation's income and induced consumption

As a nation's income falls, there is less disposable income for consumers to spend. With less disposable income, consumers would spend less on consumption. Therefore, induced consumption would be affected.
03

Choose the correct answer

Based on our understanding of the relationship between income and induced consumption, we can conclude the following: a) If a nation's income falls, induced consumption cannot rise. b) If a nation's income falls, induced consumption also falls as people have less disposable income. This is the correct answer. c) Induced consumption cannot remain the same if the nation's income falls, as the decrease in income results in less disposable income for consumers. So, the correct answer is (b) induced consumption falls as a nation's income falls.

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