In the basic Keynesian model, a decline in autonomous spending:
A)reduces short-run equilibrium output.
B)increases short-run equilibrium output.
C)reduces potential output.
D)increases potential output.

Question

Quizplus · Accepted Answer

A decline in autonomous spending causes the PAE curve to shift downward, which causes the intersection with the 45-degree line to move down and to the left, reducing short-run equilibrium output.

In the Basic Keynesian Model, a Decline in Autonomous Spending