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. a. If household wealth falls by 6 percent because of declining house values, and the real interest rate falls by 2 percentage points, what direction and by how much will the aggregate demand curve initially shift at each price level? (Click to select) by S billion. b. In what direction and by how much will it eventually shift? (Click to select) by S 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. a. If household wealth falls by 6 percent because of declining house values, and the real interest rate falls by 2 percentage points, what direction and by how much will the aggregate demand curve initially shift at each price level? (Click to select) by S billion. b. In what direction and by how much will it eventually shift? (Click to select) by S billion.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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