Question

If equilibrium income rises by 50 as a result of a 10-unit increase in autonomous investment (ΔI = 10, ΔY = 50), the value of the multiplier is:

Options

• 5

• 50

• 10

• 0.2

Answer 1

The multiplier is the ratio of the change in income to the change in autonomous expenditure: \[k = \frac{\Delta Y}{\Delta I} = \frac{50}{10} = 5\]. Each unit of new autonomous spending generates five units of additional income.