Which of the following will cause a direct increase in consumption spending?
A)an increase in planned investment
B)an increase in government spending
C)an increase in disposable income
D)a decrease in net export spending

Question

Quizplus · Accepted Answer

An increase in disposable income directly increases consumption spending as consumers have more money to spend on goods and services. This is known as the income effect. An increase in planned investment (A) may indirectly increase consumption spending by creating jobs and income, but it is not a direct cause. An increase in government spending (B) may indirectly increase consumption spending through multiplier effects, but it is not a direct cause. A decrease in net export spending (D) is likely to decrease overall spending in the economy, including consumption spending.

Which of the Following Will Cause a Direct Increase in Consumption