As income increases, consumption

As income increases, consumption

• A. Remains unchanged
• B. Decreases
• C. Increases
• D. Becomes unpredictable

Answer: (C)

As income rises, people have more resources to allocate to spending, so total consumption tends to rise. This reflects a positive marginal propensity to consume: for each additional unit of income, a portion is spent on goods and services. The increase in consumption is usually less than the increase in income because some of the extra income is saved (and some may be taxed), but the overall direction is upward. Staying unchanged would ignore the extra resources; decreasing would imply a negative relationship, which contradicts the standard relationship between income and consumption. Becoming unpredictable would ignore the systematic positive link seen in the consumption function.

As income rises, people have more resources to allocate to spending, so total consumption tends to rise. This reflects a positive marginal propensity to consume: for each additional unit of income, a portion is spent on goods and services. The increase in consumption is usually less than the increase in income because some of the extra income is saved (and some may be taxed), but the overall direction is upward.

Staying unchanged would ignore the extra resources; decreasing would imply a negative relationship, which contradicts the standard relationship between income and consumption. Becoming unpredictable would ignore the systematic positive link seen in the consumption function.