Which of the following graphs shows the correct effect on the consumption function when consumers become optimistic about the state of the economy?

A)Figure A
B)Figure B
C)Figure C
D)Figure D

Question

Which of the following graphs shows the correct effect on the consumption function when consumers become optimistic about the state of the economy?

A)Figure A 
B)Figure B 
C)Figure C 
D)Figure D

Quizplus · Accepted Answer

When consumers become optimistic about the state of the economy, their willingness and ability to spend increases, causing an upward shift of the consumption function. This is shown in Figure B where the initial consumption function (C1) shifts upward to the new consumption function (C2) as a result of increased consumer confidence. Figures A, C, and D do not show the correct effect on the consumption function when consumers become optimistic.

Which of the Following Graphs Shows the Correct Effect on the Consumption