Empirical studies of aggregate consumption have shown that
A)100% of the variation in consumption can be explained by changes in current income
B)wealth effects generally account for only a small amount of consumer expenditures
C)wealth effects generally are very large, which explains the large variations in consumption from year to year
D)changes in wealth have a bigger impact on consumption than changes in income
E)the marginal propensity to consume out of wealth is close to one

Question

Quizplus · Accepted Answer

Empirical studies have consistently shown that wealth effects on consumer expenditures are small relative to the effects of changes in current income. While changes in wealth can have some impact, the primary driver of changes in consumption is changes in income.

Empirical Studies of Aggregate Consumption Have Shown That