The Figure Above Shows Three Different Consumption Functions for a Nation

question 221

Multiple Choice

The figure above shows three different consumption functions for a nation.
-Which of the following events could result in the consumption function shifting from CF₀ to CF₂?

• A) an increase in disposable income
• B) a decrease in disposable income
• C) a decrease in the real interest rate
• D) a decrease in wealth
• E) an increase in expected future income

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Definitions:

Marginal Cost

The expenditure associated with creating one more unit of a good or service.

Market Equilibrium

A situation in which the supply of an item is exactly equal to its demand, leading to a stable price for the item in the marketplace.

Negative Externality

A cost suffered by a third party due to an economic transaction that they were not involved in, often without compensation.

Externalities

External impacts of an economic activity on unrelated third parties, which can be either positive or negative.