Consider the following news headline: "Canadian business leaders fear reduced world demand for commodities".Which of the following correctly describes the likely effect in our simple macro model?
A)The consumption function shifts upward.
B)The AE function shifts downward.
C)The investment function shifts upward.
D)The savings function shifts downward.
E)The AE function shifts upward.

Question

Quizplus · Accepted Answer

The news headline suggests that there will be a reduced world demand for commodities, which will likely lead to a decrease in Canadian exports and a decrease in net exports. This will result in a decrease in aggregate expenditures (AE) at every level of GDP, leading to a downward shift in the AE function.

Consider the Following News Headline: "Canadian Business Leaders Fear Reduced