In the simple Keynesian model,if there is an autonomous investment falls by $20 billion and the MPC (b)is 0.60,the equilibrium income level will increase by
A)$13.3 billion.
B)$20 billion.
C)$50 billion.
D)$100 billion.

Question

Quizplus · Accepted Answer

In the simple Keynesian model, the change in equilibrium income (ΔY) is calculated using the multiplier effect, which is 1/(1-MPC). Here, MPC is 0.60, so the multiplier is 1/(1-0.60) = 2.5. If autonomous investment falls by $20 billion, the equilibrium income will decrease by 2.5 * $20 billion = $50 billion.

In the Simple Keynesian Model,if There Is an Autonomous Investment