Decreases in autonomous spending have a contractionary effect and make ________ levels of real income consistent with a given interest rate.

Question

Quizplus · Accepted Answer

Autonomous spending refers to spending that is not affected by changes in income or interest rates, such as government spending or investment by firms. When autonomous spending decreases, it leads to a decrease in overall spending and aggregate demand in the economy. This, in turn, leads to lower levels of real income, as businesses produce less and consumers spend less due to the contractionary effect. Therefore, decreases in autonomous spending have a contractionary effect and make lower levels of real income consistent with a given interest rate.

Decreases in Autonomous Spending Have a Contractionary Effect and Make