An increase in autonomous consumer expenditure causes the aggregate demand function to shift ________, the equilibrium level of aggregate output to rise, and the IS curve to shift to the ________, everything else held constant.
A) up; left
B) up; right
C) down; left
D) down; right

Question

Quizplus · Accepted Answer

An increase in autonomous consumer expenditure would cause an increase in consumption and hence an increase in aggregate demand. This would shift the aggregate demand function upwards and increase the equilibrium level of aggregate output. The increase in output would lead to an increase in income, which would in turn lead to an increase in consumption and investment expenditures, causing the IS curve to shift to the right.

An Increase in Autonomous Consumer Expenditure Causes the Aggregate Demand