The five most important variables that determine the level of consumption are
A)disposable income, wealth, expected future income, price level, and interest rate.
B)wealth, savings account balances, chequing account balances, stock portfolio balances, and bond portfolio balances.
C)government purchases, interest rates, income, taxes, and transfers.
D)government purchases, saving account balances, wealth, interest rates, portfolio balances.
E)disposable income, taxation, expected interest rates, price level, and corporate retained earnings.

Question

Quizplus · Accepted Answer

Disposable income is the primary determinant of consumption as it is the income left after taxes and transfers. Wealth also plays an important role as it affects the household's ability to borrow and spend. Expected future income influences consumption decisions as individuals may choose to save or borrow based on expected future income. Price level affects the purchasing power of consumers, and interest rates affect borrowing costs, which can lead to changes in consumption.

The Five Most Important Variables That Determine the Level of Consumption