Stock prices in Richland declined suddenly after one of the largest banks in Richland faced bankruptcy.If animal spirits play an important role in shaping Richland's economy and assuming all else remains equal,which of the following is likely to happen?
A) Richland's consumption expenditure will increase.
B) Investment by firms in Richland will increase.
C) Wage levels in Richland will fall.
D) Unemployment in Richland will fall.

Question

Quizplus · Accepted Answer

The bankruptcy of one of the largest banks in Richland will lead to a decrease in consumer and investor confidence, resulting in a decrease in animal spirits. As a result, wage levels are likely to fall as firms try to cut costs to remain profitable. None of the other options are likely as an immediate response to the bankruptcy.

Stock Prices in Richland Declined Suddenly After One of the Largest