Question

A model that shows the relationship between household spending and disposable income in the economy is known as

• A. a saving function.
• B. a production function.
• C. a household function.
• D. an aggregate expenditure function.
• E. a consumption function.

Answer 1

A. A saving function shows the relationship between between savings and income in the economy that how much an individual save from a particular income.

B. A production function shows the relationship between input and output that how much output can be produce with given amount of input.

C. A household function does not define the aboce relationship.

D. An aggregate expenditure function inludes all the expenditure in the economy like consumption expenditure, government expenditure and investment expenditure.

E. A consumption function explains the relationship between disposable income and consumption or household spending i.e C=a+b(Yd), C shows the household expenditure, a is the autonous spending of household, b is the Marginal propensity to consume and Yd is the disposable income of the household.

So the option E is the corret answer.