Question: Suppose that consumer spending initially rises by $ 6 billion for every 1 percent rise in household wealth and that investment spending initially rises by
Suppose that consumer spending initially rises by $ billion for every percent rise in household wealth and that investment spending initially rises by $ billion for every percentage point fall in the real interest rate. Also assume that the economy's multiplier is
a If household wealth falls by percent because of declining house values, how will aggregate demand initially shift, in which direction and by how much?
b If the interest rate falls by percentage points, how will aggregate demand initially shift, in what direction and by how much?
c If both changes happen at the same time, over the long run, what would be the net effect on aggregate demand and GDP
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