An increase in business investment at a constant price level
A)shifts the AE curve downward and decreases equilibrium expenditure.
B)increases the slope of the AE curve and increases equilibrium expenditure.
C)shifts the AE curve upward and increases equilibrium expenditure.
D)has no effect on the AE curve.
E)decreases the slope of the AE curve and decreases equilibrium expenditure.

Question

Quizplus · Accepted Answer

An increase in business investment shifts the AE curve upward as investment is a component of aggregate demand (AD) and any increase in AD shifts the AE curve upward. This increase in investment expenditure leads to an increase in equilibrium expenditure as a result of the multiplier effect.

An Increase in Business Investment at a Constant Price Level