An increase in first-period income results in
A) an increase in first-period consumption, an increase in second-period consumption, and an increase in saving.
B) an increase in first-period consumption, a decrease in second-period consumption, and an increase in saving.
C) a decrease in first-period consumption, an increase in second-period consumption, and an increase in saving.
D) an increase in first-period consumption, an increase in second-period consumption, and a decrease in saving.
E) a decrease in first-period consumption, a decrease in second-period consumption, and an increase in saving.

Question

Quizplus · Accepted Answer

According to the life-cycle theory of consumption, an increase in first-period income results in an increase in first-period consumption, an increase in second-period consumption, and an increase in saving. This is because individuals want to smooth out their consumption over their lifetime and increase saving to achieve their desired level of consumption in the future. Therefore, choice A is the best answer.

An Increase in First-Period Income Results in