Consider a Simple Economy That Is Made Up of Three

question 8

Multiple Choice

Consider a simple economy that is made up of three sectors: households, firms, and government. Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption,
I_P = Planned Investment, G = Government Purchases. Further, I_P and G are autonomous.
In this case, the slope of the aggregate expenditures curve is

• A) 1.
• B) infinity (since the AE curve is horizontal).
• C) equal to the marginal propensity to consume.
• D) the value of the multiplier.

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