When income increase, consumption also increases :

Options

A. in a lower propertion
B. in a higher propertion
C. in the same propertion
D. None of the options

Answer

A

Explanation

Acoording to the Keynestan Consumption theroy., "men are disposed, as a rule and on average, to increase their consumption as their income increase, but not by as much as the increase in their income. "Another feature of consumer behavior is that when income increases, people do not spend their entire incremental income on consumption. They save a part of it for their financial security during period of unemployment. illness , etc. In simple words, the marginal propensity to consume decreases, i.e., households spends a decreasing proportion of marginal income on consumption. That is why families on lower income scale save a lower percentage of their income and those on higher scale of income save a larger propertion of their income.