The consumption function will shift up if: households expect a decrease in the minimum wage. the marginal propensity to save increases. households expect an increase in the minimum wage. the marginal propensity to consume decreases.

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Darrell Shields

9 September, 00:45

The consumption function will shift up if: households expect a decrease in the minimum wage. the marginal propensity to save increases. households expect an increase in the minimum wage. the marginal propensity to consume decreases.

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Destinee Jensen · Answer 1

households expect an increase in the minimum wage

Explanation:

The consumption function illustrates the relationship between consumption and disposable income.

If disposable income increases, consumption increases and vice versa.

Therefore if minimum wage is expected to increase, consumption increases.

The increase is represented by an upward shift of the consumption function.

If the marginal propensity to save is increasing, the marginal propensity to consume is decreasing. This statement is based on the assumption that MPC + MPS = 1