Question

Suppose that consumer spending intially rises by $5 billion for every 1 percent rise in household wealth and that invest ment spending intially rises by $ 20 billion for every 1 percentage point fall in the real interest rate. Also assume that the economy's multiplier is 3

Answer 1

Answer:

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

Multiplier (fiscal multiplier):

In economics, the multiplier (fiscal multiplier) is a concept to when in the short run any alteration in the aggregate demand level results in a repulsion effect in the aggregate demand level in the medium term.

Answer and Explanation:

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