Aggregate planned expenditure decreases if
A) government expenditure on goods and services increases.
B) exports increase.
C) real GDP decreases.
D) investment increases.
E) autonomous consumption increases.

Question

Quizplus · Accepted Answer

According to the aggregate expenditure equation, planned expenditure (AE) equals autonomous expenditure (A) plus marginal propensity to consume (MPC) times disposable income (Yd): AE = A + MPCYd. Since real GDP (Y) equals disposable income (Yd) in equilibrium, an increase in real GDP will lead to an increase in planned expenditure. Therefore, a decrease in real GDP (choice C) will lead to a decrease in planned expenditure. Choices A, B, D, and E all increase autonomous expenditure, which would increase planned expenditure.

Aggregate Planned Expenditure Decreases If