Analyzing Shifts in Autonomous Spending

Imagine an economy where businesses become more optimistic about future profits and, as a result, increase their planned capital expenditures by $100 billion, independent of the current level of national income. How would this change be represented on a graph with aggregate demand on the vertical axis and national income on the horizontal axis?

A widespread economic recession occurring in a country's major trading partners would, all else being equal, lead to a downward shift of the domestic aggregate demand curve's vertical intercept.

Analyzing the Components of the AD Curve's Intercept

An economy is described by a model where total spending is composed of several parts. Some parts depend on the current level of national income, while others do not. Which of the following events would cause a decrease in the total amount of spending that occurs even when national income is zero?

Consider an economy where spending that is independent of national income consists of the following: consumption of $80 billion, investment of $120 billion, government purchases of $150 billion, and exports of $50 billion. In this economy, the total planned expenditure when national income is zero is $____ billion.

A government is considering two distinct policy options to stimulate economic activity.

• Option A: Increase direct government purchases of goods and services by $100 billion.
• Option B: Implement a series of tax incentives that economists predict will raise autonomous consumption by $60 billion and autonomous investment by $50 billion.

Evaluate the two options based solely on their immediate effect on the vertical intercept of the aggregate demand curve. Which option would cause a larger upward shift?

Match each component of spending that is independent of national income with the economic event that would directly cause it to change.

Analyzing Conflicting Economic Shocks

Deconstructing Changes in Autonomous Spending