Consider the relationship between the AE curve and the AD curve.A rise in the amount of desired investment expenditure at each level of national income
A)shifts the AD curve to the left.
B)shifts the AD curve to the right.
C)causes a movement along the AD curve.
D)causes a movement along the AE curve.
E)causes a shift of the AE curve but no movement of the AD curve.

Question

Quizplus · Accepted Answer

An increase in desired investment expenditure at each level of national income will increase the aggregate demand (AD) in the economy. This shift in AD will cause a rightward shift of the AD curve. The AE curve represents the relation between planned expenditure and national income in the short run, so it does not shift in response to changes in desired investment expenditure. Therefore, option E is incorrect. A movement along the AD curve or the AE curve would occur if there were changes in other components of aggregate expenditure such as consumption, government spending, or net exports, but this is not stated in the question.

Consider the Relationship Between the AE Curve and the AD