Explain why the MPC and the MPS must always add up to one.
How do households “dissave”?
Explain how each of the following affects the consumption function:
a. The expectation is that a prolonged recession will occur in the next year.
b. Stock prices rise sharply.
c. The price level rises by 10 percent.
d. The interest rate on consumer loans rises sharply.
e. Income taxes increase.