Based on our understanding of the model presented in Chapter 3,we know that a reduction in c1 (where C = c0 + c1YD)will cause

Question

Quizplus · Accepted Answer

A reduction in c1 will cause the ZZ line to become flatter. This is because c1 represents the marginal propensity to consume, meaning that for each additional dollar of disposable income, consumers will consume a smaller proportion of it. As c1 decreases, consumers will consume a smaller proportion of their disposable income, which means that the multiplier effect will be smaller. As a result, a given change in autonomous consumption (c0) will have a smaller effect on output.

Based on Our Understanding of the Model Presented in Chapter