An increase in autonomous consumption has a greater impact on equilibrium output in the Keynesian cross model than the IS-LM model.

Question

Quizplus · Accepted Answer

In the Keynesian cross model, an increase in autonomous consumption leads to a higher multiplier effect on equilibrium output compared to the IS-LM model. This is because the Keynesian cross model assumes a fixed price level, while the IS-LM model allows for changes in the price level. As a result, in the Keynesian cross model, an increase in autonomous consumption leads to a higher increase in aggregate demand, which in turn leads to a greater increase in equilibrium output.

An Increase in Autonomous Consumption Has a Greater Impact on Equilibrium