Consumption: Refers to spending by households on goods and services. When income increases, people tend to consume more because they have more disposable income.
Aggregate Demand: Represents total spending by households, businesses, government entities, and foreigners within an economy. An increase in income can lead to an increase in aggregate demand.
Multiplier Effect: Describes how changes in spending can have a larger impact on the overall economy. When income increases, people tend to spend more, which then stimulates economic activity and further boosts income levels.