In the simple aggregate expenditure model, what does the slope of the aggregate expenditure line depend on?
A) interest rates
B) government budget policy
C) the price level
D) the marginal propensity to consume

Question

In the simple aggregate expenditure model, what does the slope of the aggregate expenditure line depend on?  
A) interest rates 
B) government budget policy 
C) the price level 
D) the marginal propensity to consume

Quizplus · Accepted Answer

The slope of the aggregate expenditure line depends on the marginal propensity to consume, which is the fraction of additional income that households spend on consumption. This is because aggregate expenditure is the sum of consumption, investment, government spending, and net exports, and consumption is the largest component of aggregate expenditure. Therefore, changes in the marginal propensity to consume will have a greater effect on the slope of the aggregate expenditure line than changes in any of the other factors listed.

In the Simple Aggregate Expenditure Model, What Does the Slope