ABLE 21-3 27) Refer to Table 21-3. Suppose this economy is in equilibrium. There

Question

ABLE 21-3 27) Refer to Table 21-3. Suppose this economy is in equilibrium. There is then a significant decline in house prices across the country. The likely effect is A) autonomous saving will rise and equilibrium national income will therefore rise. B) autonomous consumption will fall below $300 and equilibrium national income will therefore fall. C) autonomous investment will rise and equilibrium national income will therefore rise. D) autonomous saving will fall and equilibrium national income will therefore fall. E) autonomous consumption will rise above $300 and equilibrium national income will therefore rise.

Explanation / Answer

(27)

When the price of the house increases in the economy, then people start buying more house or in other words can be said that autonomous investment will rise, therefore AE curve shifts upward because autonomous investment is part of the AE.

AE= C+I+G

Therefore the equilibrium level of income rise from Y1 to Y2.

Therefore option C is the correct answer.

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