Question

Suppose a country bans trade with other countries, so net exports are always zero. How would this affect the slope of the AE curve?

Question 5 options:

	The AE curve becomes steeper because expenditures become more sensitive to the interest rate
	The AE curve becomes flatter because expenditures become more sensitive to the interest rate
	The AE curve becomes flatter because expenditures become less sensitive to the interest rate
	The AE curve becomes steeper because expenditures become less sensitive to the interest rate

Question 6 (0.05 points)

Which of the following statements about aggregate expenditure is/are true?

Question 6 options:

	As the real interest rate falls, aggregate expenditure increases.
	Central banks control the real interest rate in the short run.
	The aggregate expenditure curve slopes downward.
	All of the answers are correct.

Question 7 (0.05 points)

If consumer confidence fell, shifting the AE curve to the ________, it is likely the Fed would ________.

Question 7 options:

	left; decrease tax rates to keep output constant
	left; decrease interest rates to keep output constant
	right; increase interest rates to keep output constant
	left; increase tax rates to reduce output

Question 8 (0.05 points)

Aggregate expenditure:

Question 8 options:

	is the same thing as aggregate demand.
	is how much it costs firms to produce the goods and services they sell.
	is the amount of spending on goods and services for a given real interest rate.
	is always equal to potential output.

Answer 1

5) The AE curve becomes steeper because expenditures become less sensitive to the interest rate.

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.

6) All of the answers are correct.

The aggregate expenditure model relates the components of spending (consumption, investment, government purchases, and net exports) to the level of economic activity. If households have higher incomes, they will increase their spending. (This is captured by the consumption function.)

7) left; decrease interest rates to keep output constant

If the cost of borrowing increases, the household and business sectors are less likely to undertake the resulting expenditures on consumer durable goods and capital goods. As such, aggregate expenditures decrease and the aggregate expenditures line shifts down.

8) is the amount of spending on goods and services for a given real interest rate

In economics, aggregate expenditure is the current value of all the finished goods and services in the economy. It is the sum of all the expenditures undertaken in the economy by the factors during a specific time period.