In a simple model of the economy, without government or taxes, a shock that causes an upward shift of the aggregate consumption function also causes shift of the saving function.
A)a less- than- equal upward
B)no
C)an equal upward
D)an equal downward
E)a less- than- equal downward

Question

Quizplus · Accepted Answer

According to the simple Keynesian model, an upward shift of the aggregate consumption function would lead to a decrease in savings because households are consuming more of their income and saving less. Therefore, the saving function shifts downward, and the best choice is D) an equal downward shift.

In a Simple Model of the Economy, Without Government or Taxes