Define autonomous consumption and explain how it is represented on a consumption function graph
What will be an ideal response?
Autonomous consumption is the consumption expenditure that occurs when disposable income is zero. This situation is possible only in the short run because people can either spend past savings or borrow. The amount of autonomous consumption is shown by the vertical intercept of the consumption function.
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Fill in the blank(s) with the appropriate word(s).
When there is a threat of inflation in the economy, the Fed can ________ the federal funds rate so as to ________ aggregate demand and ________ the price level
A) lower; increase; decrease B) raise; decrease; increase C) lower; increase; increase D) raise; decrease; decrease E) raise; increase; decrease