Question

An upward shift in the consumption function, other things being equal, could be caused by households: a. becoming pessimistic about the state of the economy. b. becoming optimistic about the state of the economy. c. expecting future income and wealth to decline. d. experiencing a tax increase.

Answer 1

Sometimes, when there is an optimistism on an economy from the households, this could cause an upward shift in the consumption function,

What causes upward shift in the consumption function?

Where there is a significant positive returns in the stock market that can increase consumer wealth this could cause the autonomous consumption to increase.

Hence, if there is an optimistism from households, this could cause an upward shift in the consumption function as well.

Therefore, the Option B is correct.

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