Suppose households save $40 billion less at each level of income, and the MPC = 0.8.How will the aggregate expenditure line will be affected?
A) It will shift upward by $40 billion.
B) It will shift downward by $40 billion.
C) It will shift upward by $200 billion because of the multiplier.
D) It will shift downward by $200 billion because of the multiplier.

Question

Suppose households save $40 billion less at each level of income, and the MPC = 0.8.How will the aggregate expenditure line will be affected?  
A) It will shift upward by $40 billion. 
B) It will shift downward by $40 billion. 
C) It will shift upward by $200 billion because of the multiplier. 
D) It will shift downward by $200 billion because of the multiplier.

Quizplus · Accepted Answer

The aggregate expenditure line will shift downward by $40 billion because households are saving $40 billion less at each level of income. This means that there will be more money available for spending, which will increase aggregate expenditure.

Suppose Households Save $40 Billion Less at Each Level of Income