When compared to a simple macroeconomic model (with only consumption and investment),adding government and foreign trade to the AE function causes
A)the autonomous component of AE to increase.
B)the autonomous component of AE to fall.
C)the AE function to become downward sloping.
D)the AE function to become perfectly horizontal.
E)no change in the AE function.

Question

Quizplus · Accepted Answer

Adding government (through government spending) and foreign trade (through exports minus imports) to the Aggregate Expenditure (AE) function increases the autonomous component of AE, as these elements add to the economy's spending independently of its income level.

When Compared to a Simple Macroeconomic Model (With Only Consumption