According to the aggregate expenditure model, when autonomous expenditure increases, equilibrium expenditure
A) increases by a larger amount.
B) increases by an equal amount.
C) does not change because only induced expenditures increase equilibrium expenditure.
D) does not change because autonomous expenditures has no effect on equilibrium expenditure.
E) increases by a smaller amount.

Question

Quizplus · Accepted Answer

In the aggregate expenditure model, autonomous expenditure refers to spending that is not influenced by changes in income or prices, such as government spending or investment by firms. When autonomous expenditure increases, it directly increases the aggregate expenditure at every level of income. This leads to a larger increase in equilibrium expenditure, as reflected by the multiplier effect. Therefore, choice A is correct.

According to the Aggregate Expenditure Model, When Autonomous Expenditure Increases