Exhibit 8-8 Consumption function In Exhibit 8-8, which of the following could cause the movement from C₁ to C₂? A) a decrease in real asset holdings B) lower interest rates C) expectations that the economy will grow D) expectations of lower future prices

Question

Quizplus · Accepted Answer

Lower interest rates could cause an increase in consumption, as it would make it cheaper for individuals to borrow money and spend more. This would shift the consumption function upwards, leading to the movement from C₁ to C₂. A decrease in real asset holdings, expectations of economic growth, or expectations of lower future prices are not directly related to changes in consumption and therefore would not cause this movement.

Exhibit 8-8 Consumption Function