Everything else remaining the same, an increase in the marginal propensity to import ________ the slope of the AE curve and ________ equilibrium expenditure.
A)decreases; increases
B)increases; increases
C)decreases; decreases
D)increases; decreases
E)does not change; does not change

Question

Quizplus · Accepted Answer

An increase in the marginal propensity to import decreases the slope of the AE curve because more income is spent on imports rather than domestic goods, reducing the multiplier effect and thus decreasing equilibrium expenditure.

Everything Else Remaining the Same, an Increase in the Marginal