Consider a Consumption Function That Is Upward Sloping but Flatter

question 5

Multiple Choice

Consider a consumption function that is upward sloping but flatter than the 45- degree line. When real disposable income rises

• A)desired consumption will rise and saving will fall.
• B)desired consumption remains constant.
• C)desired consumption will fall and saving will rise.
• D)saving remains constant.
• E)desired consumption and saving will both rise.

---

Definitions:

Swaps

Financial derivatives where two parties exchange financial instruments or cash flows.

Gilts

Government bonds issued by the United Kingdom, considered low-risk investments since they are backed by the British government.

Unbiased Forward Rates

Interest rates or currency exchange rates that are equal to the expected future spot rates, implying no arbitrage opportunities.

Exchange Rate

The exchange rate reflecting the value of one currency compared to another.