Question

consumption expenditure is greater than disposable income. group of answer choices it is always the case that saving is positive whenever dissaving occurs whenever none of these answers is correct because it is impossible for consumption expenditure to be greater than disposable income.

Answer 1

When consumption expenditure is greater than disposable income, it means people are spending more than their income, resulting in dissaving. This can happen when people use their savings or borrow money to make purchases, but it is not sustainable.

Step-by-step explanation:

When consumption expenditure is greater than disposable income, it means that people are spending more than their income. In this case, saving is negative, which is called dissaving. It is possible for consumption expenditure to be greater than disposable income when people use their savings or borrow money to make purchases. However, it is not sustainable in the long run.

Answer 2

Consumption expenditure can indeed exceed disposable income, leading to dissaving. It is critical to understand MPC and MPS which dictate how income increases are divided between consumption and savings. The savings rate is affected directly by changes in these propensities and the level of disposable income.

Step-by-step explanation:

When discussing household finances, it is important to understand that consumption expenditure refers to spending by households on goods and services. Disposable income, on the other hand, is the amount of money individuals or households have to spend or save after taxes are taken into account. It is entirely possible for consumption expenditure to be greater than disposable income, which is indicative of dissaving, where households spend more than their income. This situation is not sustainable in the long term as it relies on drawing down savings or accumulating debt.

The relationship between consumption, disposable income, and savings can be expressed through the concept of the marginal propensity to consume (MPC) and the marginal propensity to save (MPS). Together, these propensities must add up to 1. Therefore, as the disposable income of a household increases, the household can either choose to increase its consumption or its savings, affecting the savings rate.

For instance, if the marginal propensity to consume is 0.8, then for every additional dollar of disposable income, 80 cents would be spent on consumption while the remaining 20 cents would be saved, reflecting a savings rate of 0.2. It is such behaviors that underlie the circular flow of income in the economy, contributing to aggregate consumption and savings rates.