An increase in business investment at a constant price level
A)shifts the AE curve downward and decreases equilibrium expenditure.
B)increases the slope of the AE curve and increases equilibrium expenditure.
C)shifts the AE curve upward and increases equilibrium expenditure.
D)decreases the slope of the AE curve and decreases equilibrium expenditure.
E)has no effect on the AE curve.

Question

Quizplus · Accepted Answer

An increase in business investment at a constant price level shifts the AE curve upward because it adds to planned investment, causing an increase in equilibrium expenditure. This is because the AE curve represents the relationship between planned expenditure and output at a constant price level, and an increase in investment will lead to a higher level of planned expenditure for any given level of output. Therefore, the answer choice that reflects this is C.

An Increase in Business Investment at a Constant Price Level