An increase in expected future disposable income ________ consumption expenditure and ________
A) increases; shifts the consumption function downward
B) increases; shifts the consumption function upward
C) decreases; shifts the consumption function upward
D) increases; results in a movement upward along the consumption function
E) decreases; shifts the consumption function downward
B
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According to the life-cycle hypothesis,
A) the present value of lifetime consumption equals the future value of lifetime income. B) the income earned in a lifetime will be evenly divided between consumption and saving. C) household consumption depends on income that households expect to receive each year, and financial markets are used to smooth consumption in response to changes in transitory income. D) households use financial markets to transfer funds from periods when income is high to periods when income is low.
The price of crude oil increased to $100 per barrel in early 2008. What would we expect to see happen to the supply of gasoline, which is produced using crude oil?
A) The supply of gasoline will increase. B) The supply of gasoline will decrease. C) The supply of gasoline will stay the same because the government requires gasoline producers to meet statutory minimum production levels. D) The supply of gasoline will stay the same because of the profit motives of gasoline producers.