A decrease in the marginal propensity to spend out of national income will cause
A)a decrease in the slope of the AE curve, which rotates it downward.
B)a movement to the right along the AE curve.
C)a movement to the left along the AE curve.
D)a parallel downward shift in the AE curve.
E)an increase in the slope of the AE curve, which rotates it upward.

Question

Quizplus · Accepted Answer

A decrease in the marginal propensity to spend means that for each additional dollar of income, people are saving more and spending less. This will cause the slope of the AE curve to decrease, as the increase in income leads to a smaller increase in consumption. This rotation of the AE curve downward reflects the decreased spending and increased saving.

A Decrease in the Marginal Propensity to Spend Out of National