-Refer to Figure 11.1. If the AE function in panel a) had a steeper slope:
A) an increase in exports would not shift the AD function.
B) an increase in exports would shift AD to the left rather than to the right.
C) an increase in exports would shift AD to the right by a larger amount.
D) the AD function would have a steeper slope.

Question

-Refer to Figure 11.1. If the AE function in panel a) had a steeper slope:
A) an increase in exports would not shift the AD function. 
B) an increase in exports would shift AD to the left rather than to the right. 
C) an increase in exports would shift AD to the right by a larger amount. 
D) the AD function would have a steeper slope.

Quizplus · Accepted Answer

A steeper AE function indicates a higher marginal propensity to consume (MPC), meaning that any increase in exports (a component of aggregate expenditure) would have a larger multiplier effect on aggregate demand, shifting the AD curve to the right by a larger amount.