For a given fluctuation in autonomous expenditure, economies with steeper AE functions will:
A) experience smaller business cycle fluctuations in real GDP.
B) experience the same business cycle fluctuations in real GDP.
C) experience larger business cycle fluctuations in real GDP.
D) experience stable real GDP with no business cycle fluctuations.

Question

Quizplus · Accepted Answer

Economies with steeper Aggregate Expenditure (AE) functions have a higher marginal propensity to consume or invest, meaning that any change in autonomous expenditure leads to a larger multiplier effect. This results in larger fluctuations in real GDP in response to changes in autonomous expenditure.

For a Given Fluctuation in Autonomous Expenditure, Economies with Steeper