Consider a simple macro model with demand-determined output.If z is the marginal propensity to spend out of national income,Y is national income and A is autonomous expenditure,then the simple multiplier is equal to
A)z.
B)1 - z.
C)1/z.
D)1/(1 - z).
E)Y/(1 - z).

Question

Quizplus · Accepted Answer

The simple multiplier in a demand-determined output model is defined as the ratio of the change in national income (ΔY) to the initial change in autonomous expenditure (ΔA). This can be expressed as:
Multiplier = ΔY/ΔA
Using the equation for equilibrium output in a demand-determined model, we can derive that:
Y = A/(1-z)
Taking the derivative of this equation with respect to autonomous expenditure (A), we get:
dY/dA = 1/(1-z)
So, the simple multiplier is equal to 1/(1-z). Therefore, the correct answer is option D.

Consider a Simple Macro Model with Demand-Determined Output