Consider the following news headline: "Minister of Defence announces $2 billion purchase of fighter aircraft." Assuming that aggregate output is demand- determined, and that the aircraft are purchased domestically, what will be the effect of this action, all other things equal, on the AE function and equilibrium national income?
A)the AE function will rotate downward (become flatter)and national income will fall.
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)there will be no change in the AE function or in equilibrium national income.
E)the AE function will rotate upward (become steeper)and equilibrium national income will rise.

Question

Quizplus · Accepted Answer

The purchase of fighter aircraft will increase government spending, which will shift the AE function up parallel to itself. This will lead to an increase in equilibrium national income.

Consider the Following News Headline: "Minister of Defence Announces $2