In a Simple Macro Model, a Decrease in Households' Wealth

question 32

Multiple Choice

In a simple macro model, a decrease in households' wealth is generally assumed to

• A)cause an upward shift in the consumption function.
• B)affect only saving, not consumption.
• C)cause no change in consumption because consumption is a function of disposable income only.
• D)cause a downward shift in the consumption function.
• E)cause no change in consumption because the decline is always expected.

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Definitions:

Nominal Account

Refers to accounts that track revenues, expenses, gains, and losses; these accounts are closed at the end of each accounting period.

Ledger Accounts

These are individual accounts in accounting that record transactions related to a company's assets, liabilities, equity, revenue, and expenses in a double-entry bookkeeping system.

Net Income

Represents the total profit of a company after all expenses, taxes, and costs have been subtracted from total revenues.

Adjusting Entries

Adjusting Entries are journal entries made in accounting records at the end of an accounting period to update accounts for accruals and deferrals not recorded during the period.