Consider a simple macro model with a constant price level and demand-determined output.In such a model,a downward shift of the saving function causes equilibrium national income to
A)fall because the AE function shifts downward simultaneously.
B)rise because the AE function shifts upward simultaneously.
C)remain constant but consist of more consumption and less investment.
D)remain constant but consist of less consumption and more investment.
E)remain constant because it does not affect desired aggregate expenditure.

Question

Quizplus · Accepted Answer

In this model, a downward shift in the saving function implies that at any given level of income, households are saving less and therefore consuming more. This increase in consumption shifts the aggregate expenditure (AE) function upward, leading to a higher equilibrium national income.

Consider a Simple Macro Model with a Constant Price Level