If the level of autonomous spending in an economy increases at a given price level,_____.
A)the aggregate expenditure line shifts upward and the economy moves upward along the aggregate demand curve
B)the aggregate expenditure line shifts downward and the economy moves upward along the aggregate demand curve
C)the aggregate expenditure line shifts upward and the aggregate demand curve shifts to the right
D)the aggregate expenditure line shifts downward and the aggregate demand curve shifts to the left
E)the aggregate expenditure curve shifts upward and the aggregate demand curve shifts to the left

Question

Quizplus · Accepted Answer

An increase in autonomous spending means that at every price level, there is an increase in the level of planned expenditure. This will cause the aggregate expenditure line to shift upward, as the level of expenditure is now higher for any given level of income. This, in turn, will shift the aggregate demand curve to the right, as there is now a higher level of demand for goods and services at every price level. Therefore, both the aggregate expenditure line and the aggregate demand curve will shift upward.

If the Level of Autonomous Spending in an Economy Increases