Asked by Jincy Robin on Jul 22, 2024
Verified
In the income-expenditure model,if autonomous saving increases by $15 billion,_____.
A) the aggregate expenditure line shifts upward by $15 billion
B) planned investment increases by $15 billion
C) the aggregate expenditure line shifts downward by $15 billion
D) planned investment decreases by $15 billion
E) the equilibrium level of real GDP demanded decreases by $15 billion
Autonomous Saving
The portion of savings of an economy that is independent of income levels, often related to baseline savings by consumers and companies.
Aggregate Expenditure
Represents the total spending on goods and services in an economy, including consumption, investment, government purchases, and net exports during a specific period.
- Understand the relationship between autonomous changes in saving and investment and their impact on aggregate expenditure and GDP.
- Comprehend the consequences of alterations in the aggregate expenditure trajectory on real GDP.
Verified Answer
KS
Kishy smithJul 25, 2024
Final Answer :
C
Explanation :
Autonomous saving is a component of aggregate savings, which is a leakage from the circular flow of income. An increase in autonomous saving would result in a decrease in consumption, which is a component of aggregate expenditure. Therefore, the aggregate expenditure line shifts downward by the same amount as the increase in autonomous saving, resulting in a decrease in equilibrium real GDP demanded by an equal amount.
Learning Objectives
- Understand the relationship between autonomous changes in saving and investment and their impact on aggregate expenditure and GDP.
- Comprehend the consequences of alterations in the aggregate expenditure trajectory on real GDP.