Consider the following aggregate expenditure model diagram:
For each of the following, draw a graph to show what would happen to the equilibrium level of income in the economy.
(a) Business optimism about future markets improves resulting in an increase in autonomous investment of 100.
(b) Foreign economic activity falls, which results in a fall in autonomous exports of 50.
(c) In response to a rising public debt ratio governments raise the net tax rate, which lowers the slope of the AE function from 0.75 to 0.66.

Question

Consider the following aggregate expenditure model diagram:
  For each of the following, draw a graph to show what would happen to the equilibrium level of income in the economy.
(a) Business optimism about future markets improves resulting in an increase in autonomous investment of 100.
(b) Foreign economic activity falls, which results in a fall in autonomous exports of 50.
(c) In response to a rising public debt ratio governments raise the net tax rate, which lowers the slope of the AE function from 0.75 to 0.66.

Quizplus · Accepted Answer

The Answer of Consider the following aggregate expenditure model diagram:
  For each of the following, draw a graph to show what would happen to the equilibrium level of income in the economy.
(a) Business optimism about future markets improves resulting in an increase in autonomous investment of 100.
(b) Foreign economic activity falls, which results in a fall in autonomous exports of 50.
(c) In response to a rising public debt ratio governments raise the net tax rate, which lowers the slope of the AE function from 0.75 to 0.66.

Consider the Following Aggregate Expenditure Model Diagram