An increase in net wealth will:
A)increase consumption and saving at each level of income.
B)increase saving and decrease consumption at each level of income.
C)decrease consumption and saving at each level of income.
D)increase consumption and decrease saving at each level of income.
E)have no effect on consumption because consumption is a function of income.

Question

Quizplus · Accepted Answer

An increase in net wealth will increase the overall wealth and financial resources of individuals. This, in turn, will increase consumption as people feel more confident and secure in their financial situation. At the same time, it will also decrease saving as people have more resources to use for current consumption and may feel less need to save for the future. Therefore, the best answer is D, which states that an increase in net wealth will increase consumption and decrease saving at each level of income.

An Increase in Net Wealth Will