If net exports increase by $400 billion at every level of income, the aggregate expenditure line will
A)shift upward by $400 billion
B)shift downward by $400 billion
C)shift upward by more than $400 billion because of the multiplier effect
D)shift upward by less than $400 billion
E)shift downward by more than $400 billion because of the multiplier effect

Question

Quizplus · Accepted Answer

Net exports are a component of aggregate expenditure. An increase in net exports by $400 billion means an increase in aggregate expenditure by the same amount. Thus, the aggregate expenditure line will shift upward by $400 billion. There is no multiplier effect in this scenario.

If Net Exports Increase by $400 Billion at Every Level