Which one of the following statements is INCORRECT? The ZZ curve would shift upwards to ZZ1 and reach the full employment level in the goods market if

The question asks to identify the incorrect statement that would cause the ZZ curve to shift upwards to ZZ$_1$ and reach the full employment level (Y$_F$) in the goods market. The ZZ curve represents aggregate demand. An upward shift of the ZZ curve indicates an increase in aggregate demand for any given level of output. This is typically caused by an increase in autonomous spending.

Let's analyze each option:

• A. there is a positive change in investor confidence and consumer confidence in the economy.

  • An increase in investor confidence leads to an increase in autonomous investment.
  • An increase in consumer confidence leads to an increase in autonomous consumption.
  • Both autonomous investment and autonomous consumption are components of autonomous spending. An increase in autonomous spending shifts the ZZ curve upwards. Therefore, this statement is correct in explaining an upward shift.

• B. government spending increases and taxes decrease.

  • An increase in government spending (G) directly increases autonomous spending.
  • A decrease in taxes (T) increases disposable income $(Y-T)$, which in turn increases consumption for any given level of income. This effectively increases autonomous spending.
  • Both actions are expansionary fiscal policies that increase autonomous spending, leading to an upward shift of the ZZ curve. Therefore, this statement is correct in explaining an upward shift.

• C. induced consumption increases.

  • Induced consumption is the part of consumption that depends on income, typically represented as $c_1(Y-T)$, where $c_1$ is the marginal propensity to consume (MPC).
  • If "induced consumption increases" means that the marginal propensity to consume ($c_1$) increases, this would make the ZZ curve steeper (increase its slope), rather than shifting it upwards in a parallel fashion.
  • If it refers to an increase in consumption due to an increase in income, this is a movement along the ZZ curve, not a shift of the curve.
  • A parallel upward shift of the ZZ curve is caused by an increase in autonomous spending, not by an increase in induced consumption (which affects the slope or represents a movement along the curve). Therefore, this statement is incorrect as a cause for a parallel upward shift.

Since the question asks for the incorrect statement, option C is the answer.

The final answer is $\boxed{\text{C}}$