If there is a decrease in autonomous expenditure, the new AE curve is
A)downward sloping.
B)parallel and below the original AE curve.
C)steeper than the original AE curve.
D)parallel and above the original AE curve.
E)flatter than the original AE curve.

Question

Quizplus · Accepted Answer

A decrease in autonomous expenditure shifts the AE curve downwards, showing a decrease in total expenditures at each level of income. The curve remains parallel to the original curve because the MPC (marginal propensity to consume) and MPS (marginal propensity to save) remain constant. However, the new curve is below the old one because of the decrease in autonomous expenditure.

If There Is a Decrease in Autonomous Expenditure, the New