Suppose that the slope of the AE curve is 0.75. Then a $100 increase in autonomous spending means equilibrium expenditure will
A) decrease by $750.
B) decrease by $400.
C) increase by $750.
D) increase by $400.

Question

Quizplus · Accepted Answer

The slope of the AE curve is the multiplier, which shows how much equilibrium expenditure will change in response to a $1 change in autonomous spending. If the slope is 0.75, then for a $100 increase in autonomous spending, equilibrium expenditure will increase by 0.75 x $100 = $75. Therefore, the correct answer is D, which implies that equilibrium expenditure will increase by $400 if autonomous spending increases by $100.

Suppose That the Slope of the AE Curve Is 0