ECO 304L Study Guide - Midterm Guide: Aggregate Demand, Autonomous Consumption, Consumption Function
20 Oct 2017
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Shifts of aggregate demand and changes in equilibrium output (1) changes in the consumption function. A consumption shock will cause a shift in the aggregate demand curve such as the one illustrated in the graph below. The us economy was experiencing a recession leading to the events of september 11. After the attacks there were concerns that the economy would weaken further. Instead, consumption actually increased causing a boost to the aggregate demand as pictured below. Marketing efforts by general motors and other automakers and a sense of coming together as a country may have contributed to a rise in autonomous consumption. When the high-tech boom of the late 1990s came to an end, there was a dramatic drop in (cid:271)usi(cid:374)ess i(cid:374)vest(cid:373)e(cid:374)t spe(cid:374)di(cid:374)g. let"s (cid:272)o(cid:374)sider the effe(cid:272)t of the de(cid:272)li(cid:374)e i(cid:374) i(cid:374)vest(cid:373)e(cid:374)t spending that took place between 2000 and 2001. Lower investment reduces aggregate demand for any income level.
