If Real Disposable Income Increases, the Average Propensity to Save

question 96

Multiple Choice

If real disposable income increases, the average propensity to save will

• A) initially increase, and then decrease.
• B) remain constant.
• C) increase.
• D) decrease.

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Definitions:

Marginal Revenue Product

Additional income derived from the employment of an extra production factor.

Diminishing Marginal Returns

A principle stating that if one factor of production is increased while others remain constant, the overall returns will eventually decrease after a certain point.

Marginal Revenue Product

The additional income generated from using one more unit of a resource or factor of production.

Marginal Product

The additional output that results from using one more unit of a factor, keeping other factors constant.