A change in aggregate demand causes a change in income, which in turn induces an increase in consumption.

Question

Quizplus · Accepted Answer

This statement reflects the basic principles of the Keynesian theory of aggregate demand, which suggests that changes in aggregate demand can affect the level of income, employment, and output in the short run. According to this theory, an increase in aggregate demand can stimulate economic activity, leading to higher income and consumption, while a decrease in aggregate demand can have the opposite effect.

A Change in Aggregate Demand Causes a Change in Income