Given $AD=\overline{C}+\overline{I}+c.Y$, change in autonomous consumption will lead to :
(A) Change in equilibrium level of income
(B) Change in aggregate demand
(C) Change in Investment
(D) Change in aggregate demand and no change in equilibrium level of income
(E) Change in marginal propensity to consume
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is (A) and (B) Only.
A change in autonomous consumption will lead to both a change in aggregate demand and a change in the equilibrium level of income. This is because autonomous consumption is a component of aggregate demand, so a change in autonomous consumption will shift the aggregate demand curve. As a result, the equilibrium level of income will also change.