43. As disposable income goes up, the

A. average propensity to consume falls.
B. average propensity to save falls.
C. volume of consumption declines absolutely.
D. volume of investment diminishes.

Question

43. As disposable income goes up, the

A. average propensity to consume falls.
B. average propensity to save falls.
C. volume of consumption declines absolutely.
D. volume of investment diminishes.

BlackTom AI · Accepted Answer

When disposable income changes, economists examine how different propensities and quantities respond. 
Option A: 'average propensity to consume falls.' This is plausible because APC = C/Y, and if consumption grows with income but not one-for-one, APC tends to fall as income rises (MPC is typically less than 1). So as income increases, people may spend a smaller fraction of it on consumption, causing APC to decrease. 
Option B: 'average propensity to save falls.' Since APS = S/Y and APC = 1 − APS, a fall in APC as income rises would imply a rise in APS, not a fall. Therefore this statement contradicts the usual relationship where saving as a share of income tends to stay the same or increase when income grows, making this option unlikely. 
Option C: 'volume of consumption declines absolutely.' Absolute consumption generally increases when disposable income increases (assuming no drastic changes in prices or preferences). A decrease in absolute consumption with higher income would require unusual circumstances, so this option goes against standard income–consumption behavior. 
Option D: 'volume of investment diminishes.' Investment is not determined solely by current disposable income; it hinges on interest rates, expectations, and capacity utilization. A rise in income does not inherently cause investment to fall, so this statement lacks causal support and is not a general implication of rising disposable income. 
Overall, each of the other statements either misstates the relationship between income and propensities (B), ignores the typical direction of consumption with income (C), or wrongly links income to investment behavior without justification (D).

ECNM1115.32542.202530 Spring 2025 Test 3 March 28

43. As disposable income goes up, the A. average propensity to consume falls. B. average propensity to save falls. C. volume of consumption declines absolutely. D. volume of investment diminishes.

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