ECONONIILS Chapter 5 6 As disposable income grows O both au

ECONONIILS : Chapter 5& 6 As disposable income grows O both autonomous C and induced C rise. O both autonomous C and induced C fal. O autonomous C falls and induced C rises. O autonomous C stays the same and induced C rises

Solution

ANSWER : As disposable income grow , autonomous C ( consumption ) stays the same and induced C ( consumption ) rises . Consumption = autonomous consumption + marginal propensity to consume ( induced c ) × disposable income. We assume autonomous consumption is positive. Households consume something even if their income is zero. So as disposable income increases, consumption also increases but autonomous consumption is not changes only change is induced consumption .