Using the Keynesian cross, if autonomous consumption is $300 and investment is $200, and the marginal propensity to consume is 0.9, while government spending, net exports and taxes are zero, then equilibrium output is
A) $450.
B) $500.
C) $950.
D) $5,000.

Question

Quizplus · Accepted Answer

The equilibrium output in the Keynesian cross model is calculated using the formula: Y = (1/(1-MPC)) * (C + I), where MPC is the marginal propensity to consume, C is autonomous consumption, and I is investment. Substituting the given values: Y = (1/(1-0.9)) * (300 + 200) = 10 * 500 = $5,000.

Using the Keynesian Cross, If Autonomous Consumption Is $300 and Investment