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Which of the following would shift the aggregate expenditure line upward? A.) A decrease in government...

Which of the following would shift the aggregate expenditure line upward?

A.) A decrease in government purchases

B.) A decrease in expected future income

C.) An increase in foreign real GDP

D.) An increase interest rates

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Answer #1

The correct answer is (C) An increase in foreign real GDP

Aggregate Expenditure line shows the expenditure incurred by the nation at given level of Income

=> AE = C + I + G + X - M

where C 0 consumption , I = investment , G = government expenditure X Exports and M = Imports

Increase in foreign real gdp will increase the amount of Exports. Hence for any level of income AE will be more(increase) and Hence AE line will shift upward.

Increase in interest rate will decrease investment and hence AE line will shift downward. Similarly decrease in government expenditure will decrease G and hence AE will shift downward.

A decrease in expected future income will decrease current consumption and hence AE will shift downward

Hence the correct answer is (C) An increase in foreign real GDP

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