Which one of the following will lead to an increase in the slope of the AE function?
A)an increase in the marginal tax rate
B)a decrease in the marginal propensity to save
C)an increase in the marginal propensity to save
D)a decrease in the marginal propensity to consume
E)an increase in the marginal propensity to import

Question

Quizplus · Accepted Answer

A decrease in the marginal propensity to save (MPS) implies an increase in the marginal propensity to consume (MPC), since MPS + MPC = 1. An increase in MPC leads to a steeper Aggregate Expenditure (AE) function because it indicates that consumers are likely to spend a larger portion of any additional income, thereby amplifying the impact of income changes on aggregate expenditure.

Which One of the Following Will Lead to an Increase