In a simple macro model,a decrease in households' wealth is generally assumed to
A)cause no change in consumption because consumption is a function of disposable income only.
B)cause no change in consumption because the decline is always expected.
C)cause a downward shift in the consumption function.
D)cause an upward shift in the consumption function.
E)affect only saving,not consumption.

Question

Quizplus · Accepted Answer

A decrease in household wealth would lead to a reduction in consumption, and this would cause a downward shift in the consumption function. This is because consumption is not only dependent on disposable income but also on other factors such as wealth and expectations about the future.

In a Simple Macro Model,a Decrease in Households' Wealth Is