Using the Keynesian cross, if autonomous consumption is $100, government spending and taxes are $200, investment is $100, net exports are zero, and the marginal propensity to consume is 0.8, find equilibrium output.
A) $720
B) $1,000
C) $1,200
D) none of the above

Question

Quizplus · Accepted Answer

Equilibrium output (Y) is calculated using the formula Y = (1/(1-MPC)) * (C + I + G), where MPC is the marginal propensity to consume. Here, C = $100, I = $100, G = $200, and MPC = 0.8. So, Y = (1/(1-0.8)) * (100 + 100 + 200) = 5 * 400 = $1,200.

Using the Keynesian Cross, If Autonomous Consumption Is $100, Government