When households decrease consumption spending, which of the following is likely to occur?
A) The overall level of economic activity in the circular ﬂow of income will remain unchanged.
B) Firms will increase the level of investment in capital equipment and assets.
C) Firms will employ more factors of production in an attempt to stimulate household spending.
D) Firms will decrease their demand for the factors of production from households.

Question

Quizplus · Accepted Answer

When households decrease consumption spending, firms are likely to experience a decrease in revenue. This can lead to firms reducing their production levels, which in turn would likely lead them to decrease their demand for factors of production such as labor and raw materials from households.

When Households Decrease Consumption Spending, Which of the Following Is