Following is consumption schedules for three private closed economies. DI signifies disposable income and C represents consumption expenditures. All figures are in billions of dollars. Refer to the data below. Suppose the consumption is increased by $2 billion in each of the three economies. This change could have been caused by:
A) a decrease in consumer wealth.
B) expectations of higher future income.
C) an increase in taxation.
D) an increase in saving.

Question

Following is consumption schedules for three private closed economies. DI signifies disposable income and C represents consumption expenditures. All figures are in billions of dollars. Refer to the data below. Suppose the consumption is increased by $2 billion in each of the three economies. This change could have been caused by: 
A) a decrease in consumer wealth. 
B) expectations of higher future income. 
C) an increase in taxation. 
D) an increase in saving.

Quizplus · Accepted Answer

The increase in consumption by $2 billion in each of the three economies suggests that consumers expect higher future income. They believe that they will have more money to spend in the future and therefore increase their consumption in the present. A decrease in consumer wealth, an increase in taxation, or an increase in saving would all lead to a decrease in consumption, not an increase.

Following Is Consumption Schedules for Three Private Closed Economies