On the aggregate expenditure graph,if autonomous investment decreases by $10 billion,
A)the aggregate expenditure line shifts upward by $10 billion
B)planned saving increases by $10 billion
C)the aggregate expenditure line shifts downward by $10 billion
D)planned saving decreases by $10 billion
E)the equilibrium level of real GDP demanded increases by $10 billion

Question

Quizplus · Accepted Answer

Autonomous investment is a component of planned investment, which is an important component of aggregate expenditure. A decrease in autonomous investment decreases planned investment and thereby reduces aggregate expenditure by a multiple of this decrease. Therefore, the aggregate expenditure line shifts downward by the same amount as the decrease in autonomous investment.

On the Aggregate Expenditure Graph,if Autonomous Investment Decreases by $10