Final answer:
The portion of planned aggregate expenditure that increases when income rises is called the marginal propensity to consume (MPC), which indicates how much of an additional dollar is spent on consumption.
Step-by-step explanation:
The portion of planned aggregate expenditure that increases when income Y increases is called the marginal propensity to consume (MPC). The MPC is the share of the additional dollar of income that is devoted to consumption expenditures. As national income rises, people can either consume their income or save it, leading to changes in consumption expenditures. Aggregate expenditure includes consumption, investment, government spending, exports, and imports, and the changes in each category are influenced by changes in national income.
When government spending occurs, it results in an increase in aggregate expenditure, which in turn leads to income for people throughout the economy. These individuals will then pay taxes, save a portion, and spend on imports according to their individual marginal propensities to consume and save. This shifts the aggregate expenditure function upwards and leads to a further rise in real GDP, indicating a multiplier effect.