# What is the slope of the aggregate expenditure line?

## What is the slope of the aggregate expenditure line?

The slope of the aggregate expenditures curve, given by the change in aggregate expenditures divided by the change in real GDP between any two points, measures the additional expenditures induced by increases in real GDP.

## Why is the slope of the aggregate expenditure line positive?

This red line, labeled AE in the exhibit is positively sloped, indicating that greater levels of income and production generate greater aggregate expenditures by the four macroeconomic sectors. This positive relation reflects the Keynesian economics principle of effective demand–more income means more expenditures.

In a simple Keynesian model, the slope of the Aggregate Expenditure curve is the same as marginal propensity to consume.

What is the slope of the planned aggregate expenditure curve?

Curve The slope of the aggregate expenditures curve, given by the change in aggregate expenditures divided by the change in real GDP between any two points, measures the additional expenditures induced by increases in real GDP.

### What determines the slope of the AE line?

The aggregate expenditure line slope is determined by the change in the aggregate expenditure divided by the change in real gross domestic product…

### What determines the slope of the planned expenditure function?

The slope of the line in Figure 16.11 “Planned Spending in the Aggregate Expenditure Model” is given by the marginal propensity to spend. For the reasons that we have just explained, we expect that this is positive: increases in income lead to increased spending.

Why the aggregate demand curve is downward sloping?

The aggregate demand (AD) curve slopes downward because output decreases as the price level increases. Increases or decreases in autonomous spending components can shift the AD curve. Through policy changes, the government can also shift the AD curve.

What is the slope of the consumption function?

The slope of the consumption function is called the marginal propensity to consume. The MPC tells us how much of an additional dollar of income is spent.

## Which factors make the aggregate expenditure line steeper?

However, the slope of the aggregate expenditures line is based on all induced factors. If investment and government purchases are induced in addition to consumption, then the slope is steeper and the multiplier is bigger. If taxes and imports are also induced, then the slope is flatter and the multiplier is smaller.

## Why aggregate demand curve is upward sloping?

The LM curve is upward sloping because higher income results in higher demand for money, thus resulting in higher interest rates. The intersection of the IS curve with the LM curve shows the equilibrium interest rate and price level.

Why does the aggregate demand curve slope downward quizlet?

The aggregate demand curve slopes downward because at a higher price level: the purchasing power of consumers’ wealth declines and consumption decreases. When the general price level rises: consumption falls as a result of the wealth effect.

What is the slope of the aggregate expenditures curve?

The slope of the aggregate expenditures curve was 0.8, the marginal propensity to consume. Now, as a result of taxes, the aggregate expenditures curve will be flatter than the one shown in Figure 28.8 “Plotting the Aggregate Expenditures Curve” and Figure 28.10 “Adjusting to Equilibrium Real GDP”.

### Where does the aggregate expenditures curve cross the 45 degree line?

The point at which the aggregate expenditures curve crosses the 45-degree line is the equilibrium real GDP, here achieved at a real GDP of \$7,000 billion. The 45-degree line shows all the points at which aggregate expenditures AE equal real GDP, as required for equilibrium.

### How do you construct the aggregate expenditure line?

This line is labeled Y=AE. We then construct the aggregate expenditure line by adding up the values for consumption (C), planned investment (I), government spending (G), and net exports (NX). Note that I+G+NX always has the same value regardless of GDP, but consumption has a positive intercept with a positive slope.

What happens when aggregate expenditures exceed real GDP?

If aggregate expenditures exceed real GDP, then firms will increase their output and real GDP will rise. If aggregate expenditures equal real GDP, then firms will leave their output unchanged; we have achieved equilibrium in the aggregate expenditures model. At equilibrium, there is no unplanned investment.