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

Question

Quizplus · Accepted Answer

In the Keynesian-cross analysis, the change in equilibrium income due to a change in government purchases is determined by the government spending multiplier, which is 1/(1-MPC), where MPC is the marginal propensity to consume. Therefore, the equilibrium income rises by ΔG divided by one minus the marginal propensity to consume.

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