Which Statement Is Consistent with What Keynes Believed About Consumption

question 7

Multiple Choice

Which statement is consistent with what Keynes believed about consumption and disposable income?

• A) Consumption depends upon disposable income and falls as disposable income rises.
• B) Consumption rises by the same amount as disposable income rises.
• C) Consumption rises by less than disposable income rises.
• D) Disposable income depends upon consumption.

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Definitions:

Effective Rate

The interest rate on a loan or financial product, restated from the nominal rate as an annual rate accounting for compound interest.

Interest Charged

The cost of borrowing money, calculated as a percentage of the principal amount on a loan or credit.

Semiannual Compounding

Interest calculation method where the interest is added to the principal twice a year, leading to compound interest growth.

Effective Rate

The equivalent annual interest rate when compounding at intervals different from annually. It reflects the total amount of interest paid or earned over a year.