Suppose an Individual Experiences a $25,000 Decrease in Real Income

question 54

Multiple Choice

Suppose an individual experiences a $25,000 decrease in real income and the individual believes this decrease in income is permanent. Economic theory suggests that this individual's current consumption will:

• A) decrease, remain unchanged, or increase, depending on the value of the real interest rate.
• B) decrease by more than $25,000.
• C) decrease at most by $25,000.
• D) decrease or remain unchanged, depending on the value of the real interest rate.
• E) decrease by less than $25,000.

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