Answer to Question #236566 in Macroeconomics for Econ1014

Question

Based on our understanding of the Aggregate Expenditure (AE) Model (AE), we know that an increase in c₁ (where C = c₀ + c₁Yd) will cause the AE function to become:

Flatter and a given change in autonomous consumption (c₀) to have a smaller effect on output.

Flatter and a given change in autonomous consumption (c₀) to have a larger effect on output.

Steeper and a given change in autonomous consumption (c₀) to have a larger effect on output.

Steeper and a given change in autonomous consumption (c₀) to have a smaller effect on output.

Answer 1

Steeper and a given change in autonomous consumption (c₀) to have a larger effect on output.