Refer to the given consumption schedules. DI signiﬁes disposable income and C represents consumption expenditures. All ﬁgures are in billions of dollars. A $2 billion increase in consumption at
Each level of DI could be caused by
A) a decrease in consumer wealth.
B) new expectations of higher future income.
C) an increase in taxation.
D) an increase in saving.

Question

Refer to the given consumption schedules. DI signiﬁes disposable income and C represents consumption expenditures. All ﬁgures are in billions of dollars. A $2 billion increase in consumption at
Each level of DI could be caused by
A) a decrease in consumer wealth. 
B) new expectations of higher future income. 
C) an increase in taxation. 
D) an increase in saving.

Quizplus · Accepted Answer

An increase in consumption at each level of DI indicates that consumers have new expectations of higher future income, which is represented by an increase in consumption expenditures. A decrease in consumer wealth, an increase in taxation, or an increase in saving would all result in a decrease in consumption expenditures, and thus would not be the cause of a $2 billion increase in consumption at each level of DI.

Refer to the Given Consumption Schedules