Consider the following news headline: "Increase in consumer confidence leads to increase in spending".Which of the following correctly describes the likely effect in our simple macro model?
A)The consumption function shifts downward.
B)The consumption function gets flatter.
C)The AE function shifts upward.
D)The consumption function shifts upward.
E)Both C and D are correct.

Question

Quizplus · Accepted Answer

An increase in consumer confidence typically leads to an increase in consumer spending, which directly affects the consumption function by shifting it upward. This upward shift in the consumption function, in turn, causes the Aggregate Expenditure (AE) function to shift upward as well, since AE includes consumption among its components.

Consider the Following News Headline: "Increase in Consumer Confidence Leads