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

Question

Quizplus · Accepted Answer

A decrease in households' wealth is likely to result in a decrease in their consumption spending, as they have less resources available. This would cause a downward shift in the consumption function.

In a Simple Macro Model, a Decrease in Households' Wealth