If consumers correctly anticipate their future incomes:
A) the saving rate will be high when consumers anticipate a boom.
B) the saving rate will be low when consumers anticipate a boom.
C) the saving rate will be low when consumers anticipate a recession.
D) they will be disappointed because future income can never be correctly forecasted.

Question

Quizplus · Accepted Answer

When consumers anticipate a future boom in their incomes, they are more likely to spend their money rather than save it. This leads to a low saving rate. On the other hand, when consumers anticipate a future recession, they are more likely to save their money as a precautionary measure, leading to a high saving rate.

If Consumers Correctly Anticipate Their Future Incomes