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Explain how the consumption ratio can be over 100% (of disposable income).

  1. Explain how the consumption ratio can be over 100% (of disposable income).

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Answer #1

When consumption ratio to income is greater than 100 percent it means that consumption is more than the income level.

This occurs at initial level of income when consumption exceeds income or there is dissaving or saving becomes negative.

So individual is spending more than his income from his past savings.

This generally happens when initially individual has just started off with his work and has low income thus he consumes out of his savings( made is past) for some time.

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