When, at a particular price level, aggregate demand for final goods equals aggregate supply of final goods, the final goods or product market reaches its equilibrium. Aggregate demand for final goods consists of ex ante consumption, ex ante investment, Government spending etc. The rate of increase in ex ante consumption due to a unit increment in income is called marginal propensity to consume. For simplicity we assume a constant final goods price and constant rate of interest over short run to determine the level of aggregate demand for final goods in the economy. We also assume that the aggregate supply is perfectly elastic at this price. Under such circumstances, aggregate output is determined solely by the level of aggregate demand. This is known as effective demand principle. An increase (decrease) in autonomous spending causes aggregate output of final goods to increase (decrease) by a larger amount through the multiplier process.

The shape of investment function, when I is autonomous curve, is represented through :

A horizontal line parallel to x-axis

The correct answer is option (2) : A horizontal line parallel to x-axis

An autonomous investment function means that investment is not directly related to changes in income or interest rates. It remains constant, and as a result, it is represented as a horizontal line in graphs. Regardless of changes in income or interest rates, the level of investment remains the same.