Moving along the aggregate expenditure (AE) curve, when real GDP increases, aggregate planned expenditures increase<\/p>\n\n\n\n
A) by more than real GDP.<\/p>\n\n\n\n
B) by the same amount as does real GDP.<\/p>\n\n\n\n
C) by less than real GDP.<\/p>\n\n\n\n
D) proportionately with real GDP.<\/p>\n\n\n\n
E) by the same percentage as does real GDP.<\/p>\n\n\n\n
The correct answer and explanation is :<\/strong><\/mark><\/p>\n\n\n\n The correct answer is: C) by less than real GDP.<\/strong><\/p>\n\n\n\n The aggregate expenditure (AE) curve<\/strong> shows the relationship between aggregate planned expenditure and real GDP. It is a key concept in Keynesian economics and is used to determine equilibrium output in the short run.<\/p>\n\n\n\n Aggregate planned expenditure includes:<\/p>\n\n\n\n Out of these components, consumption<\/strong> is the one most directly linked to changes in real GDP. As real GDP increases, disposable income<\/strong> (income after taxes) increases, which in turn increases consumption. However, consumption does not increase by the same amount as income due to the marginal propensity to consume (MPC)<\/strong>.<\/p>\n\n\n\n The MPC<\/strong> is the proportion of additional income that households spend on consumption. It is always less than 1<\/strong> (unless in a theoretical extreme), meaning households save part of any additional income. Therefore, as real GDP rises, consumption increases, but not by the full amount<\/strong> of the increase in GDP.<\/p>\n\n\n\n For example, if real GDP increases by \\$100 billion and the MPC is 0.8, then consumption will only increase by \\$80 billion. This leads to a less than one-for-one<\/strong> increase in aggregate expenditure relative to the increase in real GDP.<\/p>\n\n\n\n The AE curve itself has a positive slope less than 1<\/strong>, which visually reflects that as real GDP increases, AE also increases, but at a slower rate<\/strong>. This behavior causes the AE curve to be upward sloping<\/strong> but flatter than the 45-degree line<\/strong>, which represents points where AE = GDP.<\/p>\n\n\n\n Therefore, moving along the AE curve<\/strong>, aggregate planned expenditures increase by less than real GDP<\/strong> due to the nature of consumption behavior in response to changes in income.<\/p>\n","protected":false},"excerpt":{"rendered":" Moving along the aggregate expenditure (AE) curve, when real GDP increases, aggregate planned expenditures increase A) by more than real GDP. B) by the same amount as does real GDP. C) by less than real GDP. D) proportionately with real GDP. E) by the same percentage as does real GDP. The correct answer and explanation […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[25],"tags":[],"class_list":["post-211448","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/211448","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/comments?post=211448"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/211448\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=211448"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=211448"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=211448"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Explanation:<\/h3>\n\n\n\n
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