In a macro model with a constant price level, an increase in autonomous desired consumption will cause the AE curve to shift
A)upward and the AD curve to shift to the left.
B)upward and a movement to the right along the AD curve.
C)downward and the AD curve to shift to the left.
D)upward and the AD curve to shift to the right.
E)downward and the AD curve to shift to the right.

Question

Quizplus · Accepted Answer

An increase in autonomous desired consumption will shift the AE curve upward, indicating higher levels of aggregate expenditure at each level of income. This will cause the AD curve to shift to the right, indicating a higher level of equilibrium output and price. This is because firms will respond to the increase in demand by producing more output, leading to higher prices due to the limited supply of goods and services. Therefore, option D is the correct choice.

In a Macro Model with a Constant Price Level, an Increase