A country is closed.It has no government sector,and its aggregate price levels and interest rates are fixed.Furthermore,the marginal propensity to consume is constant and the country's consumption function is as follows: C = 200 + 0.75YD,where YD is disposable income and C is consumption.Assume that planned investment equals 75.Holding everything else constant,what will happen if aggregate wealth decreases by $100?
A) The planned aggregate expenditures curve will shift downwards.
B) The income-expenditure equilibrium real GDP will increase by more than $100.
C) There will be no multiplier effect on real GDP,since there is a drop in aggregate wealth.
D) Planned investment will increase.
Correct Answer:
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