Graphically illustrate the effects of this change in autonomous consumption on the demand line (ZZ) and Y. Clearly indicate in your graph the initial and final equilibrium levels of output. d. Briefly explain why this reduction in output is greater than (in absolute terms) the initial reduction in autonomous consumption.
a. Y = 5000. The graph is easy to show.
b. Y = 4800; the multiplier is 2.
d. When demand falls by 100, firms cut production by 100. As production falls by 100, income falls which causes a subsequent reduction in consumption and demand.This Y-induced fall in demand causes another reduction in production. This continues and we observe a final change in Y that exceeds the initial change in autonomous demand.