Answer to Question #224844 in Macroeconomics for Sara

Question #224844

2. disposable personal income must imply an increase in consumption or an
increase in saving.
c. An increase in both consumption and saving must imply an increase in disposable
income.
[ For both parts b and c assume there are no interest payments by households or transfer pay-
ments to foreigners.

Expert's answer

Starting from the conditions of equation YD = S + C, when the disposable income is increased, the change could be saved or consumed.

c. Increase in consumption and savings should mean an increase in disposable income, which is consistent with the equation YD = S + C.