The average value of stock shares falls by 10 percent. Other things being equal, we would expect
A) an increase in the marginal propensity to consume.
B) a decrease in the marginal propensity to consume.
C) a shift up of the consumption function.
D) a shift down of the consumption function.

Question

Quizplus · Accepted Answer

A fall in the average value of stock shares reduces household wealth, leading to a decrease in consumption at each level of income, thus shifting the consumption function down.

The Average Value of Stock Shares Falls by 10 Percent