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

Question

Quizplus · Accepted Answer

An increase in households' wealth typically leads to an increase in desired consumption, causing an upward shift in the aggregate consumption function, as people feel wealthier and more financially secure.

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