When the economy enters an expansion of a business cycle, households become more optimistic about future disposable income.The increase in optimism leads to
A) a shift upward of the consumption function.
B) an increase in consumption expenditures.
C) no change in the level of consumption expenditures.
D) a movement upward along the consumption function.
E) a movement downward along the consumption function.

Question

Quizplus · Accepted Answer

When households become more optimistic about future disposable income, they are likely to increase their consumption at any given level of income, leading to an upward shift of the consumption function.

When the Economy Enters an Expansion of a Business Cycle