The aggregate expenditure model predicts a business cycle expansion occurs when
A) autonomous expenditure increases.
B) aggregate supply increases.
C) potential GDP increases.
D) induced expenditure decreases.
E) the aggregate planned expenditure curve shifts downward.

Question

Quizplus · Accepted Answer

The aggregate expenditure model predicts that an increase in autonomous expenditure (e.g. increased consumer spending or business investment) will shift the aggregate demand curve to the right, resulting in an expansion of the economy. This is because the increased spending leads to increased production and employment, generating a positive feedback loop of increasing demand and output. Therefore, choice (A) is the correct answer.

The Aggregate Expenditure Model Predicts a Business Cycle Expansion Occurs