Question

An increase of the marginal propensity to spend out of national income will cause a parallel shift of AE curve”. Is this statement true or false? Please explain if it is false.

Answer 1

strict parallelism can be observed only in exceptional cases, as: 1) for most products, the curve will shift in parallel, with attenuation along the X axis, which is provoked by a decrease in the marginal utility of the product 2) for luxury goods there will be an opposite trend - an increase along the X axis, since with an increase in income this group of goods becomes more in demand with an increase in income