According to the consumption function in Figure 16.2:
A) people's lifetime utilities are equal to .
B) people prefer to consume the average over their lifetimes rather than and .
C) the utility associated with consuming the average over both periods is less than the average of and .
D) .
E) the marginal propensity to consume is greater than one.

Question

According to the consumption function in Figure 16.2:
A) people's lifetime utilities are equal to . 
B) people prefer to consume the average over their lifetimes rather than and . 
C) the utility associated with consuming the average over both periods is less than the average of and . 
D) . 
E) the marginal propensity to consume is greater than one.

Quizplus · Accepted Answer

The consumption function shows that people prefer to consume the average over their lifetimes rather than saving all their income until the second period or consuming all their income in the first period. This is indicated by the highest point on the consumption function occurring at the point representing the average income over both periods. None of the other answer choices are supported by the information given.

According to the Consumption Function in Figure 16.2