When the Consumption Function Lies Above the 45-Degree Line, Households

question 148

Multiple Choice

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

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

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Definitions:

Home Equity Loans

Loans provided to homeowners based on the difference between the market value of their home and the outstanding balance of all liens on the property.

Japanese Savings Rate

The Japanese Savings Rate is the proportion of disposable income that is saved by households in Japan, historically known for being high.

Middle-Aged Americans

Refers to individuals in the United States typically between the ages of 45 and 64, often considered to be in the middle phase of life.

Autonomous Consumption

The level of consumption that occurs when income levels are zero, representing the expenditures that consumers must make even when they have no income.