Chapter 5: Problem 9

The consumption function tells us that, as income rises, consumption \((\mathrm{LO3})\) a) declines b) remains the same c) rises more slowly than income d) rises more quickly than income

Short Answer

Expert verified

c) As income rises, consumption rises more slowly than income.

Step by step solution

Understanding the Consumption Function

The consumption function is an economic concept that shows the relationship between an individual's or a nation's income level and their spending habits. In general, as income increases, consumption also increases. However, the rate at which consumption increases can differ based on the particular consumption function. In this question, we need to determine how consumption behaves as income rises.

Comparing the given options

We have four options to consider: a) Declines: This option suggests that as income rises, consumption decreases. This is counterintuitive, as one would generally expect consumption to increase with higher income. b) Remains the same: This option suggests that there is no change in consumption as income rises. This is also counterintuitive, as increased income should lead to increased consumption. c) Rises more slowly than income: This option suggests that consumption increases as income rises, but at a slower rate than the increase in income. d) Rises more quickly than income: This option suggests that consumption increases at a faster rate than the increase in income.

Applying the principles of the consumption function

We know that consumption will generally increase as income rises, so we can eliminate options a) and b). In most cases, consumption will not increase at a faster rate than income, as individuals tend to save more when their income rises. Therefore, option d) is also unlikely.

Conclusion

Based on the principles of the consumption function and after analyzing the given options, we can conclude that the correct answer is: c) As income rises, consumption rises more slowly than income.

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