Should autonomous consumption fall by one dollar, the effect of this on equilibrium income can be offset if government expenditure

Question

Quizplus · Accepted Answer

According to the Keynesian Cross Model, when autonomous consumption changes, the equilibrium level of income changes by a multiple of the change in autonomous expenditure (government expenditure in this case), where the multiple is the expenditure multiplier. The expenditure multiplier is given by 1/(1 - c). Thus, to offset a $1 decrease in autonomous consumption, government expenditure must increase by 1/(1 - c) dollars. Therefore, the correct answer is B; government expenditure must rise by one dollar.

Should Autonomous Consumption Fall by One Dollar, the Effect of This