The aggregate consumption function can shift because of changes in expected disposable income and in aggregate wealth.

Question

Quizplus · Accepted Answer

Changes in expected disposable income and aggregate wealth can affect the amount of disposable income households have available to spend, thereby shifting the aggregate consumption function. For example, if households expect their future income to increase, this could increase their willingness to spend and shift the consumption function upward. Likewise, if there is an increase in aggregate wealth (such as through a stock market boom or a housing bubble), households may feel wealthier and more inclined to spend, also shifting the consumption function upward.

The Aggregate Consumption Function Can Shift Because of Changes in Expected