Suppose for Every Dollar Change in Household Wealth,consumption Expenditures Change

question 54

Multiple Choice

Suppose for every dollar change in household wealth,consumption expenditures change by $0.05.If real household wealth declines by $45 billion,potential GDP is $120 billion,and the multiplier effect for the first year after an expenditure shock is 1.4,what is the total change in output relative to potential for the first year?

• A) -1.63%
• B) -2.63%
• C) -2.8%
• D) -7.0%

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Definitions:

Irrational

Lacking reason or logical thinking; actions or beliefs that are not based on logical reasoning or clear thinking.

Self-destructive Behaviors

Actions undertaken by an individual that intentionally or inadvertently cause harm or damage to themselves, often as a way of coping with distress or psychological pain.

Psychoanalysis

A therapeutic approach based on Freudian theories focusing on unconscious motivations and conflicts.

Economic Gain

The increase in wealth or resources resulting from the profitable activities of individuals or businesses.