In Most Derivations of the Aggregate Expenditures Model, Investment Is

question 46

Multiple Choice

In most derivations of the aggregate expenditures model, investment is assumed to be independent of real GDP.What would be the effect on the aggregate expenditures (AE) function if investment spending were positively related to income?

• A)The intercept of the AE function would rise.
• B)The slope of the AE function would become flatter.
• C)Both the slope and the intercept of the AE function would increase.
• D)The slope of the AE function would become steeper.
• E)The intercept of the AE function would increase, and its slope would become flatter.

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Definitions:

Demand for Cigarettes

The quantity of cigarettes that consumers are willing and able to purchase at various prices, influenced by factors like income, price of substitute goods, and regulations.

Smoking Habits

Patterns or behaviors related to the consumption of tobacco products, including the frequency and amount of usage.

Complements

Goods that are used together, where an increase in the demand for one leads to an increase in demand for the other.

Inferior Good

A type of good for which demand decreases as the income of the consumer increases.