The disposable income increases by $100, this means aggregate consumption will increase by $75 and autonomous consumption remains at $1000.
We are given the following in the question:
C(Y D )= 1000+0.75 YD
where C is the consumption and YD is the disposable income.
If the disposable income increases by $100, then we can write
C( Y D +100 ) - C(Y D) = 1000+ 0.75(Y D+100)- (1000 + 0.75 Y D)
C( Y D +100 ) - C(Y D)= 75
Thus, the aggregate consumption will increase by $75.
Autonomous consumption is the consumption when customer makes no disposable income.
Thus, we put YD = 0
C(0) = 1000+ 0.75(0)
C(0)= 1000
Thus, the autonomous consumption is $1000.
The disposable income increases by $100, this means aggregate consumption will increase by $75 and autonomous consumption remains at $1000.
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