From the consumption function, it can be concluded that total spending is raised as consumption arises due to a rise in autonomous consumption. A rise in total spending is witnessed, as the rise in autonomous consumption acts as a catalyst to additional spending. For an individual, a rise in consumption is lead due to an initial rise in autonomous consumption and for another individual additional income is generated by this process. For the first individual, additional consumption spending is also led by this process. For example, the total spending will be increased by two-hundred dollars if there is an increase of forty dollars in autonomous consumption.
Government purchases and investments also have an autonomous spending component similar to consumption. These two sectors also consider the process of the multiplier. However, a decrease in autonomous consumption by one of these sectors of total spending is also held by this process, i.e., change in total spending = change in autonomous spending X multiplier. For example, regarding the economy’s future, business owners become more optimistic. They believe that more services and goods will be purchased by the members of the government and household sectors. Therefore, more capital goods and factories are bought by business owners in the expectation of a better time and this leads to a rise in investment spending.
In this case, without making any particular changes within the real GDP or income the investment spending raises and a rise in autonomous investment spending also results. According to the analysis of the multiplier, through some multiple, the total spending will be changed due to this additional autonomous investment. For example, if five is the multiplier then the total spending will be raised by five dollars on a dollar increase in autonomous investment.
