In Figure 9.2,if the consumption function shifts from C₂ to C₁,autonomous consumption A)Increases,and aggregate demand shifts to the right. B)Decreases,and aggregate demand shifts to the right. C)Increases,and aggregate demand shifts to the left. D)Decreases,and aggregate demand shifts to the left.

Question

Quizplus · Accepted Answer

If the consumption function shifts downwards from C₂ to C₁, autonomous consumption decreases which leads to a decrease in aggregate demand. This is because the total demand in the economy is composed of consumption, investment, government spending, and net exports. A decrease in autonomous consumption leads to a decrease in consumption spending which, in turn, leads to a decrease in aggregate demand. Therefore, the correct answer is (D) Decreases, and aggregate demand shifts to the left.