Econ: Decrease in autonomous consumption

Question

Assume that there is a decrease in autonomous consumption. (At each interest rate and level of income, households consume less) From both a Keynesian and non-Koynesian perspective please describe what happens to:

(1) interest rates (2) investment (3) real output (4) price level (5) unemployment.

Assume that expected inflation is zero and remains zero.

For each, increases, decreases, or stays the same?

Please divide into Keynesian and Non-Keynesian. It would also help, if you know the answer to only one of the perspectives.

Keynesians and Non-Keynesians please represent! Thanks

Answer 1

Keynesian perspective :

First the consumption function shifts and process of fall in employment, output and interest rate starts. Then at some point, inventories run out and the upswing starts along the aggregate demand curve s output increases.

The sequence runs as follows: decrease in autonomous consumption, leads to increase in saving, leads to fall in aggregate expenditure with negative multiplier effect, leads to fall in price level and fall in real output, leads to excess savings, leads to fall in interest rate, leads to higher demand for investments, leads to higher aggregate demandt, leads to rise in output and employment due to multiplier effect . First the consumption function shifts and process of fall in employment, output and interest rate starts. Then at some point, inventories run out and the upswing starts along the aggregate demand curve s output increases.

Non- Keynesian perspective:

P)rices being totally flexible and so are interest rates abnd wages, the first downward shift in autonomous consumption expenditure is quickly corrected in commodities market with prices going down . And the chasin of relationships work themselves out:

fall in autonous consumption, leads to fall in price level, output and higher saving, leads to fall in interest rate, leads to rise in investment demand, leads to rise in aggregate demand, leads to rise in output, economy  goes back into original equilibrium.