Aggregate Expenditure Model: Understanding the Components

Which function is drawn as a horizontal line in the Aggregate Expenditure model?

a. Savings b. Consumption c. Aggregate expenditures d. Investment

Final answer:

In the aggregate expenditure model, the function drawn as a horizontal line is the Investment (I).

Explanation:

In the aggregate expenditure model, the function which is drawn as a horizontal line is the Investment function (I). Investment is considered autonomous and does not depend on other components like consumer income or output level, hence it is represented as a horizontal line.

Aggregate expenditure, denoted as c +I+G+ (X-M), is composed of consumption (c), investment (I), government spending (G), and net exports (X-M). Of these components, savings and consumption are dependent variables and fluctuate with changes in income levels hence they are not drawn as a horizontal line.

Therefore, while considering aggregate expenditure components within the economic model, Investment is the function that's drawn as a horizontal line.

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