The equilibrium level of national income is equal to
A) the level of autonomous expenditures divided by the marginal propensity to expend.
B) the level of autonomous expenditures multiplied by one minus the marginal propensity to expend.
C) the level of autonomous expenditures divided by one minus the marginal propensity to expend.
D) the level of autonomous expenditures multiplied by the marginal propensity to expend.

Question

Quizplus · Accepted Answer

The equilibrium level of national income is determined by the formula Y = A / (1 - MPC), where Y is the equilibrium national income, A is the level of autonomous expenditures, and MPC is the marginal propensity to consume. This formula is derived from the Keynesian cross model, where the equilibrium occurs where the aggregate expenditures equal total output. Option C correctly represents this relationship.

The Equilibrium Level of National Income Is Equal to