According to the Keynesian-cross analysis, when there is a shift upward in the government-purchases schedule by an amount ∆G and the planned expenditure schedule by an equal amount, then equilibrium income rises by: one unit.
A)∆G.
B)∆G divided by the quantity one minus the marginal propensity to consume.
C)∆G multiplied by the quantity one plus the marginal propensity to consume.

Question

Quizplus · Accepted Answer

In the Keynesian-cross model, an increase in government purchases (∆G) shifts the planned expenditure schedule upward, leading to a multiplied increase in equilibrium income. The multiplier effect is given by 1/(1-MPC), where MPC is the marginal propensity to consume. Thus, the increase in equilibrium income is ∆G divided by (1-MPC).

According to the Keynesian-Cross Analysis, When There Is a Shift