A decrease in autonomous consumption ________.
A)lowers planned expenditures
B)raises equilibrium output for any level of the interest rate
C)causes a movement down along the IS curve
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

Autonomous consumption is the level of consumption that does not depend on income. A decrease in autonomous consumption will lower planned expenditures because households will spend less at any level of income. This causes a downward shift of the consumption function and a movement down along the IS curve, leading to a lower equilibrium output for any level of the interest rate. Therefore, choice A is the correct answer.

A Decrease in Autonomous Consumption ________