5. Consumption function and non-income determinants The following graphs show an economy's initial position at point A along its consumption function CF. Suppose disposable income suddenly and unexpectedly decreases. Adjust the following graph by either shifting the CF curve or the initial point on the CF curve to illustrate the impact of a fall in disposable income. REAL CONSUMPTION SPENDING (Billions of dollars) DISPOSABLE INCOME (Billions of dollars)
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The consumption function (CF) shows the relationship between disposable income and consumption spending. It is generally upward sloping because as disposable income increases, consumption spending also increases. Show more…
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