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

question 178

Multiple Choice

The wealth effect helps explain the slope of the aggregate-demand curve.This effect is

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

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Definitions:

Circular-Flow Diagram

A graphical representation of the economic system illustrating the circulation of money between households and companies through various markets.

Market

A forum where buyers and sellers come together to exchange goods, services, or information.

Goods and Services

Goods and services encompass all the physical items and intangible benefits that are produced and consumed to satisfy human wants and needs.

Factors of Production

Factors of production are the inputs used in the production of goods or services in the attempt to make an economic profit, including labor, capital, land, and entrepreneurship.