Equilibrium output equals autonomous spending multiplied by the spending multiplier.

Question

Quizplus · Accepted Answer

This is true according to the basic formula for calculating equilibrium output in a Keynesian model, which is Y = (1 / (1 - MPC)) * A, where MPC is the marginal propensity to consume and A is autonomous spending. The term (1 / (1 - MPC)) is the spending multiplier, which is the factor by which a change in autonomous spending affects equilibrium output. Therefore, Y = A * (1 / (1 - MPC)) is the equation that shows that equilibrium output is equal to autonomous spending multiplied by the spending multiplier.

Equilibrium Output Equals Autonomous Spending Multiplied by the Spending Multiplier