1. Know the term: consumption function. 2, when disposable income is zero, consu

Question

1. Know the term: consumption function. 2, when disposable income is zero, consumption expenditure is equal to (autonomous /induced) consumption. 3. On a consumption function graph, be able to identify dissaving, saving is zero, saving and the relationship between the consumption expenditure and disposable income (greater than/less than/equal to) for each. Refer to Figure a. Dissaving . Consumption expenditure is (greater than/less than/equal to) disposable income. b. Saving is zero . Consumption expenditure is_(greater than/less than/equal to) disposable income. c. Saving expenditure is(greater than/less than/equal to) disposable income. 4. In the situations below, determine whether the consumption function (CF) will

Explanation / Answer

Ans 1 ) Consumption function gives the relationship between consumption and disposable income.

Ans 2) when disposable income is zero consumption expenditure is equal to autonomous consumption.

As at this stage consumption counts as dissaving. Since consumption can be met only through savings or borrowings. Autonomous consumption comprises of it.

Ans 3a) Dissaving

Consumption expenditure is greater than disposable income.

Because at this stage disposable income is zero or less than consumption expenditure which can be seen from the diagram . At this stage saving is used up for consumption .

Ans b)when saving is zero consumption expenditure is equal to disposable income.

that means the entire income is spent on consumption.

Ans c)Saving

consumption expenditure is less than disposable income.

Because for saving to occur disposable income should be more than consumption expenditure.

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