When autonomous investment increases, the aggregate demand curve shif…

The correct answer is Option (2) → Parallel Upwards.

When autonomous investment increases, it leads to a direct increase in aggregate demand at every level of income, since investment is a component of aggregate demand. This causes the aggregate demand (AD) curve to shift parallel upwards, indicating higher demand across all income levels.

Suppose the initial aggregate demand (AD) function is:

AD=C+I =(100+0.5Y) + 50 = 150+0.5Y

Here:

• Autonomous consumption = ₹100

• Marginal propensity to consume (MPC) = 0.5

• Autonomous investment (I) = ₹50

Now, imagine the government or private sector decides to increase autonomous investment by ₹30. The new investment becomes ₹80.

So the new AD function becomes: AD=(100+0.5Y)+80 =180+0.5Y

 

• The slope (0.5) of the AD curve remains the same, because MPC has not changed.

• But the intercept increases from 150 to 180 due to the ₹30 rise in investment.

  This results in a parallel upward shift of the AD curve — at every level of income, aggregate demand is now ₹30 higher than before.