In the income-expenditure model,if autonomous saving increases by $15 billion,_____.
A)the aggregate expenditure line shifts upward by $15 billion
B)planned investment increases by $15 billion
C)the aggregate expenditure line shifts downward by $15 billion
D)planned investment decreases by $15 billion
E)the equilibrium level of real GDP demanded decreases by $15 billion

Question

Quizplus · Accepted Answer

Autonomous saving is a component of aggregate savings, which is a leakage from the circular flow of income. An increase in autonomous saving would result in a decrease in consumption, which is a component of aggregate expenditure. Therefore, the aggregate expenditure line shifts downward by the same amount as the increase in autonomous saving, resulting in a decrease in equilibrium real GDP demanded by an equal amount.

In the Income-Expenditure Model,if Autonomous Saving Increases by $15 Billion,_____