Question: 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

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 3 percentage points, in what direction and by how much will the aggregate demand curve initially shift at each price level?

  • Aggregate demand will initially shiftrightwardby $(How Much) billion.

b. In what direction and by how much will it eventually shift?

  • Aggregate demand will eventually shiftrightwardby $(how much)billion.

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