Question

suppose ad shifts by $60 for every $1,000 change in consumer wealth. by how much will ad decrease when the stock market falls in value by $200 billion?

Answer 1

The AD will decrease by $12 million when the stock market value decreases by $200 billion, as AD shifts by $60 for every $1,000 change in consumer wealth.

Step-by-step explanation:

When the stock market falls in value by $200 billion, and assuming the aggregate demand (AD) shifts by $60 for every $1,000 change in consumer wealth, the total decrease in AD can be calculated simply by multiplying the decrease in consumer wealth by the shift per $1,000 of wealth. To find out the shift in AD:

• Divide the total decrease in stock market value by $1,000. Thus, $200,000 million / $1,000 = 200,000.
• Then, multiply the result by $60. So, 200,000 × $60 = $12 million.

Therefore, the AD will decrease by $12 million when the stock market falls in value by $200 billion.