Consumer spending initially rises

Reference no: EM13688822

Suppose that the consumer spending initially rises by $5 billion for the very 1 percent rise in household wealth and the investment sending usually rises by $20 billion for every 1 percentage point fall in the real interested rate. Also assume that the economy multiplier is 4. If household wealth falls by 5 percent because of declining house values and real interest rate falls by 2 percentage points, in what direction and by how much will the aggregate demand curve initially shift at each price level? In what direction and by how much will in eventually shift?

Reference no: EM13688822

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