An increase in first-period income results in
A) an increase in first-period consumption, an increase in second-period consumption, and an increase in saving.
B) an increase in first-period consumption, a decrease in second-period consumption, and an increase in saving.
C) a decrease in first-period consumption, an increase in second-period consumption, and an increase in saving.
D) an increase in first-period consumption, an increase in second-period consumption, and a decrease in saving.
E) a decrease in first-period consumption, a decrease in second-period consumption, and an increase in saving.

Question

Quizplus · Accepted Answer

An increase in first-period income leads to an increase in both current and future consumption as well as saving. This implies a higher level of overall income, allowing households to consume more in both periods without compromising their savings. Therefore, the best choice is A because it represents an increase in first-period consumption, an increase in second-period consumption, and an increase in saving.

An Increase in First-Period Income Results in