Everything else remaining the same, an increase in the marginal propensity to consume _______ the slope of the AE curve and _______ equilibrium expenditure.
A)decreases; decreases
B)increases; increases
C)increases; decreases
D)decreases; increases
E)does not change; does not change

Question

Quizplus · Accepted Answer

An increase in the marginal propensity to consume means that for every additional dollar of income, more is spent on consumption, resulting in a steeper slope of the AE curve. This in turn leads to a higher equilibrium expenditure, as the AE curve intersects the 45-degree line at a higher level of output.

Everything Else Remaining the Same, an Increase in the Marginal