Use the Following to Answer Questions

question 31

Multiple Choice

Use the following to answer questions .
Exhibit: Aggregate Expenditures (AE) in a Simplified Economy

-(Exhibit: Aggregate Expenditures (AE) in a Simplified Economy) Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption, I_P = Planned Investment. Consider a simple economy that is made up of only two sectors, households and firms, and that all investment is autonomous. Further, disposable personal income = real GDP. Suppose autonomous investment rises by $50 billion. In the short run, this will cause

• A) an increase in equilibrium AE of $100 billion, a shift to the right of the aggregate demand (A
• D) curve of $100 billion, and an increase in Y of more than $100 billion.
• B) an increase in autonomous AE of $50 billion, a shift to the right of the AD curve of $100 billion, and an increase in Y of less than $100 billion.
• C) an increase in autonomous AE of $50 billion, a shift to the right of the AD curve of $100 billion, and an increase in Y of more than $200 billion.
• D) an increase in equilibrium AE of $50 billion, a shift to the right of the AD curve of $300 billion, and an increase in Y of less than $300 billion.

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