In the income-expenditure model,if autonomous investment decreases by $10 billion,_____.
A)the aggregate expenditure line shifts upward by $10 billion
B)planned saving increases by $10 billion
C)the aggregate expenditure line shifts downward by $10 billion
D)planned saving decreases by $10 billion
E)the equilibrium level of real GDP demanded increases by $10 billion

Question

Quizplus · Accepted Answer

Autonomous investment is a component of the aggregate expenditure that does not depend on the level of real GDP. Therefore, when autonomous investment decreases by $10 billion, the aggregate expenditure line shifts downward by the same amount since the total planned expenditure decreases at every level of income. This means that the equilibrium level of real GDP demanded also decreases by $10 billion since it is the level of GDP where planned expenditure equals actual expenditure.

In the Income-Expenditure Model,if Autonomous Investment Decreases by $10 Billion,_____