In a simple macro model,an increase in households' wealth is generally assumed to
A)cause no change in desired consumption because consumption is a function of disposable income only.
B)cause no change in desired consumption because the increase is always expected.
C)cause a downward shift in the aggregate consumption function.
D)cause an upward shift in the aggregate consumption function.
E)affect only desired saving,not desired consumption.

Question

Quizplus · Accepted Answer

An increase in households' wealth would lead to an increase in their desired consumption and thus an upward shift in the aggregate consumption function. This is because wealth increases their ability to consume, in addition to disposable income.

In a Simple Macro Model,an Increase in Households' Wealth Is