Question

If the MPC is 0.75 and autonomous investment rises by 20, the total increase in equilibrium income is:

Options

• 15

• 26.67

• 20

• 80

Answer 1

\[K=\frac{1}{1-c}=\frac{1}{1-0.75}=4\]. The total increase in income is \[\Delta Y = K \times \Delta \bar{A} = 4 \times 20 = 80\], i.e., four times the initial autonomous investment increase.