Draw a Keynesian cross graph and assume that macro economy starts and ends at equilibrium. Label the initial aggregate demand line AD0, Then show what happens in the diagram when a rise in consumer wealth raises C in your diagram. (This event might happen if the stock market or the housing market enjoys large price increases. You do not need to put numbers on the graph just indicate the direction of the change)
a) How does the AD line shift? Label the new line AD1
b) What is the initial effect of this change on inventories? How will firms change production in response to this change?
c) What happens to the equilibrium level of production, income, and spending? Does each rise, fall, or stay the same?