Consider a simple macro model with a constant price level and demand-determined output.If the simple multiplier is 3 and there is a $2 million increase in autonomous investment spending,then the equilibrium level of income will increase by
A)$1.2 million.
B)$2 million
C)$3 million.
D)$4.5 million.
E)$6 million.

Question

Quizplus · Accepted Answer

The simple multiplier effect implies that the change in equilibrium income is the multiplier times the change in autonomous spending. Here, the multiplier is 3, and the increase in investment is $2 million, so the increase in income is 3 * $2 million = $6 million.

Consider a Simple Macro Model with a Constant Price Level