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Given AD = C + I + CY, 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 :

Solution

Correct Option: 2

A change in autonomous consumption shifts the AD curve (B). Through the multiplier, this changes the equilibrium level of income (A). It does not change Investment (C is wrong), nor the MPC (E is wrong). Equilibrium income does change (D is wrong). Correct combination: A and B.

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