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Stock values decrease decreasing consumers wealth

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Reference no: EM132476236

a. Consider "C", consumption by consumers

i. Stock values decrease decreasing consumers wealth. Which way would the AD line shift?

ii. Consumers believe that their future incomes will be decreasing. Which way would the AD line shift ?

b. Consider businesses investment, "I".

i. Fall in their expected rate of return. Which way would the AD line shift?

ii. Fall in business confidence. Which way would the AD line shift?

c. Start with the economy at equilibrium near full employment (so that the AD line crosses the AS line somewhere near the full potential GDP. Now shift the AD line in accordance with 3ai; 3aii; 3bi; 3bii. You should end up with 4 shifts one after the other (don't start over again for each one) and a representation of a recession.

Reference no: EM132476236

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