Consider a simple macro model with a constant price level and demand- determined output. If the simple multiplier is 3 and there is a $2 million increase in autonomous investment spending, then the equilibrium level of income will increase by
A)$6 million.
B)$3 million.
C)$4.5 million.
D)$1.2 million.
E)$2 million

Question

Quizplus · Accepted Answer

The simple multiplier effect is calculated by multiplying the change in autonomous spending by the multiplier. Here, the multiplier is 3, and the increase in autonomous investment spending is $2 million. Therefore, the increase in equilibrium income is 3 * $2 million = $6 million.

Consider a Simple Macro Model with a Constant Price Level