An increase in real GDP leads to
A) an increase in aggregate planned expenditure.
B) a decrease aggregate planned expenditure.
C) a change in aggregate planned expenditure but whether the change is an increase or a decrease depends on whether nominal GDP increases or decreases.
D) no change in aggregate planned expenditure.

Question

Quizplus · Accepted Answer

An increase in real GDP leads to an increase in income, which in turn leads to an increase in consumption expenditure (C) and investment expenditure (I). This increase in C+I makes up aggregate planned expenditure (APE). Therefore, an increase in real GDP leads to an increase in APE.

An Increase in Real GDP Leads to