Question

In the simple Keynesian model, an increase of one dollar in autonomous expenditure will

cause equilibrium income to increase by a multiple of this one dollar increase. Explain the

process by which this happens using different approached of explanations

Answer 1

The Keynesian Multiplier is an economic theory that asserts that an increase in private consumption expenditure, investment expenditure, or net government spending (gross government spending – government tax revenue) raises the totalGDP by more than the amount of the increase. Therefore, if the autonomous expenditure increases by 1units, the total GDP will increase by more than 1unit.