The Wealth Effect Helps Explain the Downward Slope of the Aggregate-Demand

question 89

Multiple Choice

The wealth effect helps explain the downward slope of the aggregate-demand curve. How important is this effect and why?

• A) It is relatively important in Canada because expenditures on consumer durables is very responsive to changes in wealth.
• B) It is relatively important in Canada because consumption spending is a large part of GDP.
• C) It is relatively unimportant in Canada because money holdings are a small part of consumer wealth.
• D) It is relatively unimportant in Canada because it takes a large change in wealth to make a significant change in interest rates.

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Definitions:

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