Suppose for every dollar change in household wealth,consumption expenditures change by $0.05.If real household wealth declines by $45 billion,potential GDP is $120 billion,and the multiplier effect for the first year after an expenditure shock is 1.4,what is the total change in output relative to potential for the first year?

Question

Quizplus · Accepted Answer

The change in consumption is $45 billion * $0.05 = $2.25 billion. The total change in output is $2.25 billion * 1.4 = $3.15 billion. The percentage change relative to potential GDP is ($3.15 billion / $120 billion) * 100% = 2.63%.

Suppose for Every Dollar Change in Household Wealth,consumption Expenditures Change