Use the following to answer question 14: Figure: Income-Expenditure Equilibriunm

Question

Use the following to answer question 14: Figure: Income-Expenditure Equilibriunm Planned aggregate spending, AEplanned billions of dollars) $4,000 45-degree 3,500 3,000 2,000 1,000 800 0 $500 1000 1.500 2,000 2.500 3,000 3,500 4,00o Real GDP (billions of dollars) Y* 14. (Figure: Income-Expenditure Equilibrium) According to the figure Income-Expenditure Equilibrium, if planned investment spending increases in this economy, then (other things constant) the: A) Planned (Total) Expenditure (AE) curve will shift up, increasing the income expenditure equilibrium B) Planned (Total) Expenditure (AE) curve will shift down, decreasing the C) D) income-expenditure equilibrium government's budget deficit will rise. supply of saving must fall. 15·The medium-of-exchange function means that money is used: A) as the common denominator of B) as the common denominator of future payments C) to pay for goods and services. D) to accumulate purchasing power. prices.

Explanation / Answer

14. Since planned investment spending is a component of the aggregate expenditure any increase in it will cause the aggregate expenditure to rise.

So option A)

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