If the government changes transfer payments ($\overline{TR}$), autonomous spending ($A$) will change by?

Option 1 -> This assumes all transfer payments directly become autonomous spending, ignoring the savings behavior of households.

Option 2 -> Transfer payments increase disposable income, but only a fraction (c, the marginal propensity to consume) becomes consumption spending, making autonomous spending change by c·ΔTR.

Option 3 -> This represents the multiplier (Δy/ΔTR), which shows the total change in income, not the change in autonomous spending.

Option 4 -> This expression (1-c)ΔTR would represent the portion saved, not the change in autonomous spending.

Hence, Option 2: c·ΔTR -> When transfer payments change by ΔTR, disposable income increases by the same amount. However, households do not spend all of this additional income; they consume only a fraction based on their marginal propensity to consume (c) and save the rest (1-c). Since autonomous spending includes autonomous consumption, it changes by c·ΔTR. For example, if c = 0.8 and transfer payments increase by $100, autonomous spending increases by 0.8 ×$100 = $80, while$20 is saved. -> correct