I have a question from an old assignment that I cant wrap my head around.
Other things remaining the same, if households suddenly decide to save more at each level of income, then the consumption function will: a) become steeper because the marginal propensity to consume (MPC) falls. b) become less steep because the marginal propensity to save (MPS) rises. c) make a parallel shift downward as autonomous consumption expenditure falls. d) remain unchanged but the savings function will shift downward.
I don't understand why it can't be option B. Since
MPS+MPC = 1
C = C₀ + (MPC)Y (Consumption function = Auto. Consumption + MPC(Income))
Given this, if MPS increases - it should mean that MPC decreases and so the slope of the consumption function decreases. Hence, option B. The answer however is C and I don't understand why.