An increase in autonomous expenditure shifts the AE curve
A)upward but leaves its slope unchanged.
B)upward and the curve becomes steeper.
C)upward and the curve becomes less steep.
D)downward and the curve becomes steeper.
E)downward but leaves its slope unchanged.

Question

Quizplus · Accepted Answer

An increase in autonomous expenditure, such as an increase in government spending or investment, will shift the AE curve upward because at every level of output, there is now more spending taking place. However, it does not change the slope of the AE curve, which is determined by the marginal propensity to consume and the marginal tax rate. Therefore, the best choice is A - upward but leaves its slope unchanged.

An Increase in Autonomous Expenditure Shifts the AE Curve