When the Consumption Function Lies Above the 45 -Degree Line

question 3

Multiple Choice

When the consumption function lies above the 45 -degree line, households

• A) are dissaving.
• B) spend on consumption a decreasing percentage of any increase in income.
• C) save all of any increase in income.
• D) spend on consumption an increasing percentage of any increase in income.

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Definitions:

Standard Deviation

Standard Deviation is a statistical measure that quantifies the amount of variation or dispersion of a set of values; in finance, it is commonly used to gauge the volatility of an investment.

Pension Funds

Investment pools that collect and manage funds contributed by employers and employees for future retirement benefits, investing in various assets for long-term growth.

Tax Deductible

Expenses that can be subtracted from gross income to reduce taxable income, effectively lowering the overall tax liability.

Ordinary Income

Income earned from basic sources such as wages, salaries, commissions, and interest, subject to standard tax rates.