Which Statement Is Correct

question 159

Multiple Choice

Which statement is correct?

• A) M1 is always larger than M2.
• B) M2 is always larger than M1.
• C) M1 is larger than M2 during recessions,while M2 is larger than M1 during expansions.
• D) M2 is larger than M1 during recessions,while M1 is larger than M2 during expansions.

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Definitions:

Induced Consumption

Consumption that increases when income increases and decreases when income decreases, reflecting consumers' responsive behavior to changes in income levels.

Disposable Income

The monetary flexibility households have for saving and spending after deducting income taxes.

Consumption

The use of goods and services by households, constituting a primary component of economic activity.

Disposable Income

Funds permissible for households' usage in saving and spending post the accounting of income taxes.