Consider the following news headline: "Minister of Defence announces $2 billion purchase of military helicopters." Assuming that aggregate output is demand-determined,and that the helicopters are purchased domestically,what will be the effect of this action,all other things equal,on the AE function and equilibrium national income?
A)The AE function will shift down parallel to itself,and equilibrium national income will fall.
B)The AE function will rotate upward (become steeper),and equilibrium national income will rise.
C)The AE function will rotate downward (become flatter),and national income will fall.
D)The AE function will shift up parallel to itself,and equilibrium national income will rise.
E)There will be no change in the AE function or in equilibrium national income.

Question

Quizplus · Accepted Answer

The purchase of military helicopters domestically increases government spending, which shifts the Aggregate Expenditure (AE) function upward in a parallel manner. This increase in government spending, assuming all other factors remain constant, leads to a rise in equilibrium national income due to the multiplier effect.

Consider the Following News Headline: "Minister of Defence Announces $2