Aggregate expenditure equals the sum of consumption, investment, government spending, and net exports. These are also the components of aggregate demand. The aggregate expenditure model looks at the effects of changes in demand on income (Y), assuming that the price level does not change. Likewise, in the flat or Keynesian portion of the AS curve, the price level will not change when output changes. In an AE model with MPC = 0.80, the government increases spending by $100 million. What will be the increase in equilibrium Y in the Keynesian AE model? Say you have two graphs of an economy: a graph showing the Keynesian model (as discussed in part A, above) and another showing the AD/AS model. In the AD/AS diagram, the AD curve will shift to the right by the amount of the increase in Y predicted by the Keynesian AE model. If the AD curve intersects the AS curve in the flat, Keynesian portion of the AS curve, what will be the increase in real output in the AD/AS model resulting from the $100 million increase in government spending? Continuing the line of questioning from part B, above, now say the AD curve intersects the AS curve where the AS is vertical. What will be the increase in real output in the AD/AS model resulting from the $100 million increase in government spending? If the AD curve intersects the AS curve in the middle section of the AS curve, can you calculate the increase in real output in the AD/AS model resulting from the $100 million increase in government spending? If not, what additional information would you need? In general, what effect does the slope of the AS curve have on the size of the change in real output due to an increase in autonomous expenditure in the AE model? At the flat, horizontal portion of the AS curve an increase in AD will greatly increase output but barely, if at all, affect the price level. At the more vertical portion of the AS cure, an increase in AD will cause a small, if any, increase in output and a large increase in price level.