Ceteris paribus,in a closed economy,if consumers become more pessimistic ________.
A)autonomous consumption will fall
B)investment will fall
C)saving will increase
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

If consumers become more pessimistic, they are likely to decrease their consumption expenditure, leading to a fall in autonomous consumption (choice A). This can lead to a decrease in output and, therefore, investment (choice B) as firms respond to the decreased demand, which can further reduce the producers' confidence in the future. Thus, to preserve economic activity, households may increase saving to a higher level, leading to a reduction in consumption expenditure. Hence, saving will increase (choice C). Therefore, all of the above choices are correct.

Ceteris Paribus,in a Closed Economy,if Consumers Become More Pessimistic ________