Suppose an Individual Experiences a $20,000 Increase in Real Income

question 6

Multiple Choice

Suppose an individual experiences a $20,000 increase in real income and the individual believes this increase in income is permanent.Economic theory suggests that this individual's current consumption will

• A)remain unchanged.
• B)increase by more than $20,000.
• C)increase by at most $20,000.
• D)decrease or remain unchanged, depending on the value of the real interest rate.
• E) decrease, remain unchanged, or increase, depending on the value of the real interest rate.

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Definitions:

Direct Materials

Raw materials that are directly consumed in the manufacturing of a product and are easily identifiable in the finished product.

Period Cost

Expenses incurred that are not directly tied to production activities, such as selling, administration, and financial costs.

Direct Labor

The wages paid to workers directly involved in the production of goods or services.

Intangible Asset

An asset that lacks physical substance but provides future economic benefits, such as intellectual property, goodwill, and brand recognition.