Everything else remaining the same, an increase in the marginal propensity to import _______the slope of the AE curve and _______ equilibrium expenditure.
A)decreases; decreases
B)decreases; increases
C)increases; decreases
D)increases; increases
E)does not change; does not change

Question

Quizplus · Accepted Answer

An increase in the marginal propensity to import decreases the slope of the Aggregate Expenditure (AE) curve because more income is spent on imports rather than domestic goods, reducing the multiplier effect and thus decreasing equilibrium expenditure.

Everything Else Remaining the Same, an Increase in the Marginal