Suppose that the slope of the AE curve is 0.67. Then a $100 decrease in autonomous spending means equilibrium expenditure will
A) decrease by $200.
B) increase by $200.
C) decrease by $300.
D) increase by $300.

Question

Quizplus · Accepted Answer

The slope of the AE (Aggregate Expenditure) curve is the multiplier, which is 1/(1 - MPC) where MPC is the marginal propensity to consume. Given the slope is 0.67, the multiplier is 1/(1-0.67) = 3. A $100 decrease in autonomous spending will thus lead to a $300 decrease in equilibrium expenditure, as the multiplier effect amplifies the initial change.

Suppose That the Slope of the AE Curve Is 0