Question

An upward shift in the consumption function, other things being equal, could be caused by households:

a. becoming optimistic about the state of the economy.
b. becoming pessimistic about the state of the economy.
c. expecting future income and wealth to decline.
d. None of the above are correct.

Answer 1

Answer: a. becoming optimistic about the state of economy

Explanation: In the example given, being upbeat about the state of the economy suggests that it is growing while other factors remain constant. In this scenario, the GDP will increase along with the income, salaries, employment, and investment growth, which will also cause the consumption function to shift upward.