For an economy in equilibrium, the Keynesian model suggests that the plot of aggregate expenditure against RGDP:
A)is a vertical line.
B)has slope lesser than 1.
C)has slope equal to 1.
D)is a horizontal line.

Question

For an economy in equilibrium, the Keynesian model suggests that the plot of aggregate expenditure against RGDP:
A)​is a vertical line.
B)​has slope lesser than 1.
C)​has slope equal to 1.
D)​is a horizontal line.

Quizplus · Accepted Answer

In the Keynesian model, the aggregate expenditure (AE) function is AE = C + I + G, where C is consumption, I is investment, and G is government spending. This function has a slope of 1 since a change in RGDP leads to an equal change in aggregate expenditure, assuming constant marginal propensities to consume and invest. Therefore, the plot of aggregate expenditure against RGDP is a straight line with a slope of 1.

For an Economy in Equilibrium, the Keynesian Model Suggests That