Choose the answer that best explains the relationship between the consumption function and the savings function. There is a positive relationship between shifts in the consumption and savings functions. When the consumption function shifts, the savings function shifts in the opposite direction. There is not a predictable relationship between the consumption function and the savings function. Shifts in the consumption function will be reflected by a change in the marginal propensity to save, or MPS.

Choose the answer that best explains the relationship between the consumption function and the savings function. There is a positive relationship between shifts in the consumption and savings functions. When the consumption function shifts, the savings function shifts in the opposite direction. There is not a predictable relationship between the consumption function and the savings function. Shifts in the consumption function will be reflected by a change in the marginal propensity to save, or MPS.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Choose the answer that best explains the relationship between the consumption function and the savings function.
There is a positive relationship between shifts in the consumption and savings functions.
When the consumption function shifts, the savings function shifts in the opposite direction.
There is not a predictable relationship between the consumption function and the savings function.
Shifts in the consumption function will be reflected by a change in the marginal propensity to save, or MPS.

Use the graphs to illustrate the effect of a decrease in consumer income expectations on the consumption (C) function and the
savings (S) function.
Real consumption
500
450
400
350
300
250
200
150
100
50
0
0
50
C = DI
с
100 150 200 250 300 350 400 450 500
Real disposable income (DI)
Real savings
500
450
400
350
300
250
200
150
100
50
0
-50
-100
-150
0
50
100 150 200 250 300 350
Real disposable income (DI)
S
400 450 500

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