A sudden decrease in consumers' wealth-resulting, for example, from a stock market crash-would initially cause a(n)
A)downward movement along the consumption function.
B)downward shift of the consumption function.
C)upward movement along the consumption function.
D)upward shift of the consumption function.

Question

Quizplus · Accepted Answer

A sudden decrease in consumers' wealth would cause a decrease in their disposable income, which would shift the consumption function downward. This is because they will be forced to spend less due to reduced income and will save more in order to preserve their remaining wealth.

A Sudden Decrease in Consumers' Wealth-Resulting, for Example, from a Stock