Consider the following news headline: "China signs deal to buy more Canadian wheat." Assuming that aggregate output is demand- determined, what effect will this have, all other things equal, on the AE function and on equilibrium national income?
A)there will be no change in the AE function or in equilibrium national income.
B)the AE function will shift up parallel to itself and equilibrium national income will rise.
C)the AE function will shift down parallel to itself and equilibrium national income will fall.
D)the AE function will rotate upward (become steeper)and equilibrium national income will rise.
E)the AE function will rotate downward (become flatter)and national income will fall.

Question

Quizplus · Accepted Answer

The news headline suggests an increase in exports, which will increase net exports (X-M) and thus increase the aggregate expenditure (AE) function. The AE function will shift up parallel to itself, resulting in an increase in equilibrium national income.

Consider the Following News Headline: "China Signs Deal to Buy