Consider the following information describing a closed economy with no government and where aggregate output is demand determined.All dollar figures are in billions. TABLE 21-3
-Refer to Table 21-3.Suppose this economy is in equilibrium.There is then a significant decline in house prices across the country.The likely effect is
A)autonomous consumption will rise above $300 billion and equilibrium national income will therefore rise.
B)autonomous saving will fall and equilibrium national income will therefore fall.
C)autonomous saving will rise and equilibrium national income will therefore rise.
D)autonomous investment will rise and equilibrium national income will therefore rise.
E)autonomous consumption will fall below $300 billion and equilibrium national income will therefore fall.

Question

Consider the following information describing a closed economy with no government and where aggregate output is demand determined.All dollar figures are in billions.  TABLE 21-3
-Refer to Table 21-3.Suppose this economy is in equilibrium.There is then a significant decline in house prices across the country.The likely effect is
A)autonomous consumption will rise above $300 billion and equilibrium national income will therefore rise. 
B)autonomous saving will fall and equilibrium national income will therefore fall. 
C)autonomous saving will rise and equilibrium national income will therefore rise. 
D)autonomous investment will rise and equilibrium national income will therefore rise. 
E)autonomous consumption will fall below $300 billion and equilibrium national income will therefore fall.

Quizplus · Accepted Answer

A decline in house prices will likely lead to a decrease in consumer wealth, which will lead to a decrease in consumer spending. This decrease in consumer spending will cause a decrease in aggregate demand, which will lead to a decrease in equilibrium national income. Therefore, autonomous consumption will likely fall below $300 billion and equilibrium national income will therefore fall.

Consider the Following Information Describing a Closed Economy with No