Suppose that consumer spending initially rises by $5 billion for every 1 percent rise in household wealth and that investment spending initially rises by $20 billion for every 1 percentage point fall in the real interest rate. Also assume that the economy's multiplier is 3. Instructions: Enter your answers as a whole number. a. If household wealth falls by 6 percent because of declining house values, and the real interest rate falls by 2 percentage points, in what direction and by how much will the aggregate demand curve initially shift at each price level? Aggregate demand will initially shift (Click to select) v by $ |billion. b. In what direction and by how much will it eventually shift? Aggregate demand will eventually shift (Click to select) by $ billion.
Suppose that consumer spending initially rises by $5 billion for every 1 percent rise in household wealth and that investment spending initially rises by $20 billion for every 1 percentage point fall in the real interest rate. Also assume that the economy's multiplier is 3. Instructions: Enter your answers as a whole number. a. If household wealth falls by 6 percent because of declining house values, and the real interest rate falls by 2 percentage points, in what direction and by how much will the aggregate demand curve initially shift at each price level? Aggregate demand will initially shift (Click to select) v by $ |billion. b. In what direction and by how much will it eventually shift? Aggregate demand will eventually shift (Click to select) by $ billion.
Chapter9: Aggregate Demand
Section: Chapter Questions
Problem 5.10P
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![Suppose that consumer spending initially rises by $5 billion for every 1 percent rise in household wealth and that investment spending
initially rises by $20 billion for every 1 percentage point fall in the real interest rate. Also assume that the economy's multiplier is 3.
Instructions: Enter your answers as a whole number.
a. If household wealth falls by 6 percent because of declining house values, and the real interest rate falls by 2 percentage points, in
what direction and by how much will the aggregate demand curve initially shift at each price level?
Aggregate demand will initially shift (Click to select) v by $
|billion.
b. In what direction and by how much will it eventually shift?
Aggregate demand will eventually shift (Click to select) v by $
billion.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0713fe25-c458-431c-b67f-479817fafa87%2F0124c14f-b967-4c5c-932b-be2c9cde9742%2Fvjzj5v6_processed.png&w=3840&q=75)
Transcribed Image Text:Suppose that consumer spending initially rises by $5 billion for every 1 percent rise in household wealth and that investment spending
initially rises by $20 billion for every 1 percentage point fall in the real interest rate. Also assume that the economy's multiplier is 3.
Instructions: Enter your answers as a whole number.
a. If household wealth falls by 6 percent because of declining house values, and the real interest rate falls by 2 percentage points, in
what direction and by how much will the aggregate demand curve initially shift at each price level?
Aggregate demand will initially shift (Click to select) v by $
|billion.
b. In what direction and by how much will it eventually shift?
Aggregate demand will eventually shift (Click to select) v by $
billion.
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