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Assume the simple spending multiplier equals 10. Determine the size and direction of any shifts in the aggregate expenditure line, the level of real GDP demanded, and the aggregate demand curve for each of the following changes in autonomous spending:
a. Autonomous spending rises by $8 billion.
b. Autonomous spending falls by $5 billion.
c. Autonomous spending rises by $20 billion.

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Solution Summary

Determine the size and direction of any shifts in the aggregate expenditure line, the level of real GDP demanded, and the aggregate demand curve for each of the following changes in autonomous spending.

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a. Autonomous spending rises by $8 billion.

From AE = C + I + G + EX - IM
When the simple spending multiplier equals 10
The $8 billion rise in spending will increase real GDP by 8*10=80 billion
Then ...

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