Suppose there is an increase in autonomous consumption.Specifically,suppose c₀ increases where C = c₀ + c₁YD. This increase in autonomous consumption will cause which of the following to increase?

Question

Quizplus · Accepted Answer

An increase in autonomous consumption (c₀) directly increases overall consumption demand, which in turn increases aggregate demand. This leads to higher equilibrium income (as the economy adjusts to meet the higher demand) and, consequently, higher equilibrium disposable income. Therefore, all of the options (equilibrium income, equilibrium disposable income, and demand) are correct.

Suppose There Is an Increase in Autonomous Consumption