Consumption is
A) positively related to household income and wealth and households' expectations about the future, but negatively related to interest rates.
B) negatively related to household income and wealth, interest rates, and households' expectations about the future.
C) determined only by income.
D) positively related to household income and wealth, interest rates, and households' expectations about the future.

Question

Quizplus · Accepted Answer

Consumption is positively related to household income and wealth because as people have more income or wealth, they are generally able to spend more. It is also positively related to positive expectations about the future, as people who expect their financial situation to improve are more likely to spend. However, consumption is negatively related to interest rates because higher interest rates make saving more attractive and borrowing more expensive, which can reduce spending.

Consumption Is