On the aggregate expenditure graph,if autonomous saving increases by $15 billion,
A)the aggregate expenditure line shifts upward by $15 billion
B)planned investment increases by $15 billion
C)the aggregate expenditure line shifts downward by $15 billion
D)planned investment decreases by $15 billion
E)the equilibrium level of real GDP demanded decreases by $15 billion

Question

Quizplus · Accepted Answer

Autonomous saving is a component of aggregate saving which is subtracted from disposable income to obtain consumption expenditure. Therefore, an increase in autonomous saving leads to a decrease in consumption expenditure at each level of real GDP, which shifts the aggregate expenditure line downward by the same amount. This is shown by the equation AE = C + I + G + NX, where C decreases due to the increase in autonomous saving, and I, G, and NX remain constant. As a result, the equilibrium level of real GDP demanded also decreases by the same amount.

On the Aggregate Expenditure Graph,if Autonomous Saving Increases by $15