Refer to Exhibit 9-8.If saving increases by $500 billion,the new level of consumption will equal ______________.According to classical economists investment would _______________ and total expenditures would ________________________.
A) $6,500 billion; then decrease by $500 billion; fall by $500 billion
B) $6,500 billion; then increase by $500 billion; fall by $500 billion
C) $7,500 billion; remain constant; fall by $500 billion
D) $6,500 billion; then increase by $500 billion; remain constant

Question

Quizplus · Accepted Answer

According to classical economists, if saving increases, it is assumed that investment will also increase by the same amount, keeping total expenditures constant. Therefore, if consumption decreases (due to increased saving), investment increases, balancing out the total expenditures.