Consider the following information describing a closed economy with no government and where aggregate output is demand determined.All dollar figures are in billions. TABLE 21-3 Refer to Table 21-3.Suppose this economy is in equilibrium.There is then a significant decline in house prices across the country.The likely effect is
A)autonomous consumption will rise above $300 billion and equilibrium national income will therefore rise.
B)autonomous saving will fall and equilibrium national income will therefore fall.
C)autonomous saving will rise and equilibrium national income will therefore rise.
D)autonomous investment will rise and equilibrium national income will therefore rise.
E)autonomous consumption will fall below $300 billion and equilibrium national income will therefore fall.

Question

Consider the following information describing a closed economy with no government and where aggregate output is demand determined.All dollar figures are in billions.  TABLE 21-3 Refer to Table 21-3.Suppose this economy is in equilibrium.There is then a significant decline in house prices across the country.The likely effect is
A)autonomous consumption will rise above $300 billion and equilibrium national income will therefore rise. 
B)autonomous saving will fall and equilibrium national income will therefore fall. 
C)autonomous saving will rise and equilibrium national income will therefore rise. 
D)autonomous investment will rise and equilibrium national income will therefore rise. 
E)autonomous consumption will fall below $300 billion and equilibrium national income will therefore fall.

Quizplus · Accepted Answer

The decline in house prices will likely cause households to feel less wealthy and therefore reduce their consumption spending. This will shift the aggregate expenditures curve downward, resulting in a lower equilibrium national income. Autonomous consumption will fall below $300 billion since it is a component of aggregate expenditures. Therefore, the correct answer is E.

Consider the Following Information Describing a Closed Economy with No