The figure given below represents the circular flow of income between households,firms,financial intermediaries,and foreign countries. Figure 4.2
- Refer to Figure 4.2.Suppose households reduce saving to $7,000.Everything else held constant,consumption spending must now be:
A)$18,000.
B)$22,500.
C)$28,000.
D)$32,000.
E)$38,000.

Question

The figure given below represents the circular flow of income between households,firms,financial intermediaries,and foreign countries. Figure 4.2 
- Refer to Figure 4.2.Suppose households reduce saving to $7,000.Everything else held constant,consumption spending must now be:
A)$18,000. 
B)$22,500. 
C)$28,000. 
D)$32,000. 
E)$38,000.

Quizplus · Accepted Answer

If households reduce saving to $7,000, the remaining income is used for consumption. Assuming total income is constant, the reduction in savings increases consumption spending. If the initial savings were higher, reducing it to $7,000 means more money is available for consumption, leading to $28,000 in consumption spending.

The Figure Given Below Represents the Circular Flow of Income