Question

Is each of the following sets of variables positively related or negatively related?

ANSWER OPTIONS ARE: POSITIVELY RELATED OR NEGATIVELY RELATED

a. The fraction of disposable income spent on consumption and the fraction of disposable income saved:

b. The value of wealth and the amount of consumption spending:

c. The interest rate and the fraction of disposable income saved:

d. The interest rate and the fraction of disposable income consumed:

e. Expected future income and consumption spending:

f. Current income and consumption spending:

Answer 1

A) negative because APC=1-APS

b) positive because an increase in wealth increases the consumption

c) Positive. Interest rate is the opportunity cost of consuming today. Thus an increase in interest rate will lead to more income Saving

d) negative. When interest rate decreases, opportunity cost of present consumption decreases and thus you will consume more of it.

e) Positive. An increase in expected Income will increase the consumption spending

f) positive because C=Ca+MPC(Yd)