Question

How will you derive the autonomous expenditure multiplier when the price of final goods and the rate of interest are given?

Answer 1

The autonomous expenditure multiplier is derived as

Y = AD ............(at equilibrium)

Y = A + cY .............[Where AD = A + cY]

Y − cY = A

Y (1 − c) = A

`Y=A/(1-c)`

Where

A = Autonomous expenditure

c = MPC

Y = level of income

`1/(1-c) =` autonomous expenditure multiplier

So, the autonomous expenditure multiplier is dependent on the income and MPC.