When autonomous investment increases, the aggregate demand curve shifts?
When autonomous investment increases, the aggregate demand curve shifts?
Solution
Option 1 -> The shift is upward but this doesn't specify whether it's parallel or not.
Option 2 -> When autonomous investment increases, it raises aggregate demand by the same amount at every income level, causing a parallel upward shift.
Option 3 -> Incorrect, as an increase in investment raises aggregate demand, not lowers it.
Option 4 -> Incorrect, the shift is upward not downward when investment increases.
Hence, Option 2: Parallel Upwards -> When autonomous investment increases, it adds a fixed amount to aggregate demand at every level of income. Since autonomous investment is independent of income level, the increase affects the intercept of the AD curve rather than its slope. This results in the entire AD curve shifting upward by the same vertical distance at all points, which is called a parallel shift. For example, if autonomous investment increases by ₹100 crores, aggregate demand increases by ₹100 crores (multiplied by the multiplier effect) at every income level, maintaining the same slope but at a higher position -> correct
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