In the basic Keynesian model,a $1 billion increase in autonomous consumption leads to ________ in short-run equilibrium output.

Question

Quizplus · Accepted Answer

In the basic Keynesian model, a $1 billion increase in autonomous consumption will shift the aggregate demand curve to the right, causing an increase in equilibrium output. The magnitude of the increase in output will depend on the size of the multiplier, which represents the increase in output per unit increase in autonomous spending. In the Keynesian model, the multiplier is greater than 1, so the increase in output will be larger than the initial increase in autonomous consumption. Therefore, the correct answer is B, an increase of more than $1 billion.

In the Basic Keynesian Model,a $1 Billion Increase in Autonomous