-In the above figure the economy is initially at point A on the aggregate expenditure curve AE₀. Suppose investment decreases. As a result A) the AE curve shifts upward to a curve such as AE₂. B) the AE curve shifts downward to a curve such as AE₁. C) there is a movement along AE₀ to a point such as B. D) there is a movement along AE₀ to a point such as C.

Question

Quizplus · Accepted Answer

When investment decreases, the aggregate expenditure (AE) curve shifts downward because the total spending in the economy at each level of income will be lower. This is represented by a new AE curve, such as AE₁, which is below the original curve.

-In the Above Figure the Economy Is Initially at Point