What causes a recessionary and inflationary gap to occur?

Question

What factors will cause the consumption function to shift? Which factors do not cause the function to shift?

Answer 1

Anything but a change in the price level will cause the consumption function to shift. The function is made up of C, I, G etc etc, and so for example, an interest rate fall will cause C,I to go up. Also, if the exchange rate became weaker, a country would import less and export more, and so the consumption function would shift upwards.

A change in the price level is just a movement along the AD curve.

Hope this helps.

Answer 2

changes in expectations about future income

changes in government spending

changes in taxes

population change

etc