Explain how changes in wealth, the price level, interest rates, and expectations alter the consumption curve
An increase in wealth increases consumption at each level of disposable income (shifts the consumption curve upward). A rise in the price level reduces the real value of assets. This reduction in wealth reduces consumption at each level of income (shifts the consumption curve downward). An increase in interest rates the reward for saving and discourages borrowers from securing current spending power. An increase in interest rates, therefore, will shift the consumption curve downward. A rise in price expectations may encourage more households to buy now to beat the expected price increase regardless of their current disposable income (shifts the consumption curve upward).
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The above figure shows the costs at Barney's Bagel Bakery. After 3000 bagels are produced each day, the ATC curve starts to slope upward because the
A) MC curve slopes upward. B) MC exceeds the ATC. C) AFC curve (not shown) starts to slope upward. D) None of the above answers is correct.
If the U.S. economy is experiencing falling price levels, the
a. expenditure schedule will shift downward. b. expenditure schedule will shift upward. c. slope of the expenditure schedule increases. d. slope of the expenditure schedule decreases.