Business, 03.03.2020 01:24, palmekar000

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 5 percent because of declining house values, and the real Interest rate falls by 3 percentage points, in what direction and by how much ill the aggregate demand curve initially shift at each price level?

Aggregate demand will shift rightward by $billion
b. In what direction and by how much will it eventually shift?

Aggregate demand will shift rightward by $billion

Answers: 3

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Suppose that consumer spending initially rises by $5 billion for every 1 percent rise in household w...