In a Simple Macro Model, an Increase in Households' Wealth

question 50

Multiple Choice

In a simple macro model, an increase in households' wealth is generally assumed to

• A)cause no change in desired consumption because the increase is always expected.
• B)cause no change in desired consumption because consumption is a function of disposable income only.
• C)affect only desired saving, not desired consumption.
• D)cause an upward shift in the aggregate consumption function.
• E)cause a downward shift in the aggregate consumption function.

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Definitions:

Cognitive Dissonance Theory

A theory suggesting that individuals experience psychological discomfort when they hold two or more contradictory beliefs, values, or ideas and are motivated to resolve this inconsistency.

Attribution Theory

The theory concerned with how individuals deduce the causes of their own and others' behavior.

Social Exchange Theory

The theory that our social behavior is an exchange process, the aim of which is to maximize benefits and minimize costs.

Foot-In-The-Door Phenomenon

A psychological strategy where getting a person to agree to a small request increases the likelihood they will agree to a larger request later.