Question

When autonomous investment rises, the Aggregate Demand curve:

Options

• Remains unchanged, with firms adjusting output along the same curve

• Shifts upward in a parallel fashion from AD₁ to AD₂

• Shifts downward in a parallel fashion from AD₁ to AD₂

• Pivots upward, becoming steeper around the same intercept

Answer 1

An increase in autonomous investment raises the autonomous (intercept) component of aggregate demand while leaving the slope (MPC) unchanged. Hence the AD curve undergoes a parallel upward shift from AD₁ to AD₂.